Your Quick Guide to Inflation

In the same way weather conditions like rain can impact your ability to score on the soccer field, economic conditions may present an obstacle to Tri-State families working to get ahead. Today, that obstacle is inflation. A basic understanding of what inflation is, its impact, and how you could potentially take advantage of rising rates will all help you navigate these temporary conditions. 

What is inflation?

Inflation reduces the purchasing power of each unit of currency, which leads to an increase in the prices of goods and services over time. It's an economics term that means you have to spend more to fill your gas tank, buy a gallon of milk, or get a haircut. In short: it increases your cost of living.

That doesn’t mean inflation is always a bad thing. When inflation is mild, consumers expect prices to continue rising and may buy now rather than pay more later. This increases demand in the short term. As a result, stores sell more, and factories produce more. They are more likely to hire new workers to meet demand. It creates a virtuous cycle, boosting economic growth.

If inflation is greater than 2%, it becomes dangerous. When prices rise between 3% to 10% in a year, it can drive too much economic growth. At that level, inflation robs you of your hard-earned dollars. The prices of things you buy every day rise faster than wages. 

The annual inflation rate for the United States is 8.3% for the 12 months ended April 2022 — according to the U.S. Labor Department.¹ 

How does inflation impact you?

Goods and services

As previously mentioned, consumer prices are up. Your family may need to reevaluate your budget and make some temporary changes to off-set the higher cost of groceries and gas. This can mean canceling a streaming service or committing to more homecooked meals. Use a tool like Money Management to gain a holistic view of your finances and create a budget in minutes. 

Borrowing products

Inflation can indirectly affect borrowing rates, potentially making borrowing more expensive. This could affect your decision when shopping for products like credit cards or a mortgage. For example, you may opt for an adjustable-rate mortgage (ARM) over a fixed-rate mortgage during a rising rate environment. That’s because ARMs typically offer a lower initial rate to off-set the volatility of a variable rate.  

Savings and deposit products

Inflation creates an opportunity to increase the earning potential on your savings. That’s because rates on savings products often rise in tandem with inflation. This means now is a fantastic time to put your money in a certificate² or bump certificate,³ interest-earning savings account, or Money Market IRA.⁴ Learn more about these savings vehicles in this quick guide. 

Economic conditions may temporarily put your budget out of bounds, but General Electric Credit Union (GECU) is here to educate and provide tools and resources that help you stay afloat during inflation. This includes Money Management, deposit products like bump certificates that help you take advantage of rising rates, and programs like Skip-a-Pay so you can keep more money in your pocket. Work or live in the Tri-State area? You can bank with us and enjoy everything the Credit Union has to offer! Confirm your eligibility, then open an account online in minutes.