Contact

Largest Increase in Inflation Since December 1981

According to BLS, “the increase was broad-based, with the indexes for shelter, gasoline, and food being the largest contributors. After declining in April, the energy index rose 3.9% over the month with the gasoline index rising 4.1% and the other major component indexes also increasing. The food index rose 1.2% in May as the food at home index increased 1.4%.”  

Further:

  • The index for all items less food and energy rose 0.6% in May, the same increase as in April.
  • While almost all major components increased over the month, the largest contributors were the indexes for shelter, airline fares, used cars and trucks, and new vehicles. 
  • The indexes for medical care, household furnishings and operations, recreation, and apparel also increased in May. 

Largest Increase Since 1981

On a 12-month basis:

  • CPI increased 8.6% for the 12 months ending May
  • This is the largest 12-month increase since the period ending December 1981
  • The all items less food and energy index rose 6.0% over the last 12 months
  • The energy index rose 34.6% over the last year, the largest 12-month increase since the period ending September 2005
  • The food index increased 10.1% for the 12-months ending May, the first increase of 10% or more since the period ending March 1981

Historical Inflation

Inflation in the United States has averaged around 3.3% from 1914 until 2022, but it reached an all-time high of 23.70% in June 1920 and a record low of -15.80% in June 1921. Most will remember the high inflation rates of the 70s and early 80s when inflation hovered around 6% and occasionally reached double-digits. But so far in 2021 and 2022, inflation seems to have gone up every single month – which you no doubt already know – because you’re feeling it.

Inflation: The Retirement Killer 

Inflation decreases the purchasing power of your money in the future and unfortunately, many don’t factor inflation into their retirement plans. Consider this: at 3% inflation, $100 today will be worth $67.30 in 20 years – a loss of 1/3 its value. Said another way, that same $100 will only buy you $67.30 worth of goods and services in 20 years. And in 35 years? Well your $100 will be reduced to just $34.44.

What Investors Need to Remember

Therefore, it is imperative that your long-term retirement strategies account for inflation and that you prepare for a decrease in the purchasing power of your dollar over time. You should strongly consider assuming that inflation will be more than 3% – its historical average. It’s true that inflation today hovers over 8% – quadruple the Federal Reserve’s target inflation rate – but a better assumption might be one based on the last 100-years of data. If you’re wrong and you find that the inflation rate for the next 25 years turns out to be 2%, then the purchasing power of your retirement savings will be more, not less. Financial advisors can create models with various inflation scenarios so you can better understand – and account for – inflation’s true impact to your retirement.

Mike Dunlop, CFP®

Partner, Financial Planner

Mike enjoys getting to know and understand his clients and their needs. Mike guides clients through the financial planning process to help them identify their goals and create a plan to achieve them. His expertise is working with folks nearing retirement and young couples looking to save for retirement and plan for their children’s education. Mike retired from the Air Force in 2014 and went back to school as a non-traditional student at the University of Northern Iowa. He obtained a bachelor’s degree in accounting. Mike is a CERTIFIED FINANCIAL PLANNER™, and a member of the National Association of Personal Financial Advisors, XY Planning Network and Fee Only Network.

Like this article? Sign up for the Benchmark Financial newsletter.

Thank you! You have signed up to receive our newsletter.
Oops! Something went wrong while submitting the form.

It all starts with hello.

Fill out this secure form and we'll reach out to you within 24 hours. And we won't send you spam or promotional emails.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

It all starts with hello.

Fill out this secure form and we'll reach out to you within 24 hours. And we won't send you spam or promotional emails.

BENCHMARK FINANCIAL, LLC (“BENCHMARK FINANCIAL”) is a registered investment advisor offering advisory services in the State[s] of IOWA and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training.The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, BENCHMARK FINANCIAL, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. BENCHMARK FINANCIAL does not warrant that the information on this site will be free from error. Your use of the information is at your sole risk. Under no circumstances shall BENCHMARK FINANCIAL be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided on this site, even if BENCHMARK FINANCIAL or a BENCHMARK FINANCIAL authorized representative has been advised of the possibility of such damages. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

Copyright 2021