What You Need to Know About Inflation

A spate of headlines this week heralded the return of inflation to the market. Unlike some market phenomena, this return has the ability to pretty quickly affect our daily lives (unlike say, meme stock madness).

So what is inflation, and how can you position yourself to handle these changes?

Inflation takes place when the cost of production increases, causing consumer prices to rise as well. In other words, your dollar covers less than it used to. There are a few reasons this could happen: in this case, it's likely due to supply chain disruptions.

You may have already noticed the effects of inflation on your daily life. Do you feel like you're spending more than usual? Perhaps you blamed it on returning to "regular life" and thus, regular spending. But the truth is that the price of goods like food or gas have actually gone up too.

The Consumer Price Index, which measures the average change in costs for certain goods and services over time, has posted a 5.4 percent increase over the past 12 months. That's meaningful! We haven't seen true inflation since the 1970s before many of us were born. Vox has a great explainer on why things are different now, but it's worth looking back to arm yourself with historical information.

So what's a smart money maven to do? As always, the answer is not to freak the eff out — even if you want to. Instead, it may be time to take a deeper dive into your budget.

It's likely worth doing anyway, given that some of our lifestyles have changed in the past few months as going out has become a greater possibility (thanks, vaccines!). Now is a good time to revisit the She Spends Guide to Reframing Your Budget. I wrote it during the pandemic, but much of the advice still holds true: look at your spending over the past few months, categorize it, and reprioritize based on your new reality.

It's important to note that some of the programs available during the pandemic no longer apply. Federal student loans, for instance, will begin accruing interest again on September 30. According to CNBC, many borrowers aren't yet ready to add their monthly student loan bill back into the mix. It's understandable if you feel this way. If you have the resources available, try to take the next two months to plan how you will rework that payment into your budget. Maybe you'll set aside a little extra money now so the first bill isn't overwhelming, for example.

Nerdwallet suggests that you may want to avoid hoarding cash in an inflationary environment. If you have a large emergency fund and aren't sure what to do next, investing could be a good step, because your dollar will buy less over time if inflation continues. To that end, take a look at your retirement contributions. Could you sock away a little more in the coming months? Also — I beg you — make sure that money is invested. I've seen a lot of folks who put their money into a retirement savings account without actually investing it, so it sits as cash, rather than potentially making investment returns.

You could also consider changing how you spend. If you're normally into buying fancy groceries, consider tapping into the offerings at Aldi or Trader Joe's (just avoid the snack section at the latter, your wallet will thank you).

Consider public transit, biking, or walking if these options are available to you — with gas prices on the rise, it's a good way to cut back on spending. Check on your monthly bills, delete subscriptions you don't use, and cancel the gym membership if you're not going.

If you have a case of the shoppies, set up a private Pinterest board, phone note, or google doc where you can save what you want to buy, rather than putting it in your cart immediately. Wait some time, then see if it still appeals to you. If it does, ask yourself: will future me be happier with this new thing, or with money in the bank?

Finally! Just because we're no longer in the throes of the pandemic, we still should do our best to give back. Mutual aid isn't going away, and community members still need our help. Sign up for a shift or donate money to local groups doing good on-the-ground work. Keep tipping workers and donating to causes you care about.