For most of recent history, the concept of inflation has been fairly abstract. As recently as 2018, the worldwide inflation rate was as low as 1.8%. However, much of that changed in 2021 when inflation started to skyrocket, partially in response to the global COVID-19 pandemic.
For the average consumer, however, the abstract concept of inflation remains just that — abstract. Instead, most people are more concerned with the rising costs of everyday items, such as food and fuel.
However, understanding how inflation can affect the cost of living in the Capital Region and beyond is an important component of good personal financial management. To help, we’ve put together a quick breakdown of inflation, cost of living, and how the components intersect.
What is Inflation & Cost of Living?
To truly understand how inflation can impact your life, it’s important to have a good understanding of what inflation is in addition to the definition of the cost of living.
- Inflation: This economic term refers to a rise in prices across all economic sectors over a given period of time, and an associated decline in purchasing power. Inflation provides a big picture of the economy for every consumer.
- Cost of Living: By contrast, cost of living is more specific. It refers to specific sectors of the economy, namely those needed to cover basic expenses such as food, housing, and transportation.
Although they are very closely related, inflation and cost of living are not the same thing. It’s important to distinguish between the two since inflation affects the cost of living for individuals and families.
How Inflation Can Affect Cost of Living in 2022
Besides the focus on the big picture of the economy (inflation) versus the smaller picture of everyday prices (cost of living), the biggest difference between these two financial concepts is the impact made on everyday people.
For example, inflation across all sectors impacts the cost of living. If costs go up everywhere, then the costs of common goods will also rise.
However, the relative impact of inflation doesn’t usually hit home for most people until it affects the sectors connected to cost of living.
In other words, the metric of inflation matters in the grand scheme of one’s financial health, especially in terms of factors like salaries, the real estate market, and investments, but it’s when the cost of items like bread, milk, and fuel go up dramatically that most people worry.
Protecting Your Financial Health During Inflation with HRCCU
During times of inflation, the effect on the cost of living can make it a challenge for many middle-class people to manage their finances, especially if their salaries don’t increase as well. However, partnering with trustworthy financial professionals, such as HRCCU, is a great way to assess the situation during times of inflation and figure out solutions to help you manage and stay afloat.
From debt counseling to savings plans and personal loans, HRCCU offers several ways to help customers stay financially healthy, even in times of collective uncertainty.
Contact HRCCU today to schedule a personal financial consultation.
