Putting the Latest Inflation Reading Into Perspective

Here are some different ways to think about 6.2% inflation

Man carrying groceries looks doubtfully at receipt
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Consumer prices rose an alarming 6.2% in the 12 months through October, the fastest pace since November 1990. But what does that 6.2% actually mean? How does that eroding buying power stack up against what you can earn by investing your money? How about how it compares with adjustments that purport to counteract rising prices? Here are a few ways to put the latest inflation reading into perspective.

Investments

Here’s how the 6.2% compares to what you might earn in a year by investing your money.

  • The inflation rate is more than 100 times higher than the measly 0.06% average interest rate on a savings account (the kind your grandparents used to depend on to help build their nest eggs). It’s a whopping 44 times the 0.14% annual rate on an average one-year certificate of deposit. (And even a really good one-year CD only gets you about 0.85%.)
  • The 10-year annualized return on the S&P 500 stock market index is 13.9% as of Oct. 29, based on price increases alone—but before taking inflation into account. Over the last year, the S&P 500 has returned about 30%, also before accounting for inflation. “Everybody understands their accounts have lost value if the stock market drops, because you can see it,” said Matt Matigian, CEO of Blue World Asset Managers. “But when it’s inflation, you can’t see the decrease in the value of your portfolio—but the losses are no less real.”
  • Homeowners are in luck this year because home prices have soared during the pandemic, up 19.8% in August from the year before, according to the S&P CoreLogic Case-Shiller Home Price Index (even though the increases have stopped accelerating.) That’s more than triple the inflation rate. 
  • Investing in gold, which is often seen as a hedge against inflation, actually would have lost you money over the last year. The price of gold is down ever-so-slightly over the last 12 months—less than 1% on the most actively traded contract—but it’s gaining strength amid worry over inflation. On Nov. 11, gold closed at $1,868.50 per ounce—the highest level since mid-June.

Cost-of-Living Adjustments 

Here’s how the inflation rate compares to adjustments that are supposed to counteract the effects of inflation.

  • Social Security recipients will get a 5.9% increase in their benefits next year to help preserve retirees’ purchasing power against inflation. That’s the biggest cost-of-living adjustment since 1982, far outpacing the 1.4% average annual hike since 2010. 
  • Wages and salaries rose 4.2% in the third quarter over the same quarter last year, marking the biggest jump since at least 2002, according to the Federal Reserve Bank of St. Louis. But once you account for inflation, many employees are still losing ground. “Real” average hourly earnings actually decreased 1.2% in October from the same month in 2020. 

Some Big-Ticket Items

The 6.2% increase is an overall hike when everything is accounted for, but there are vastly different changes in prices by category. For instance, beef and veal prices were up 20.1% over the 12 months through October, used cars and trucks were up 26.4%, but personal care products only inched up 0.2%. In some cases, there’s a lag time in the reported increases (in rent, for example, which only goes up once a year, if that). Here’s how that 6.2% compares to some of the bigger ticket recurring costs you may have, both before the pandemic and now.

  • From January to October, the national median rent increased by 16.4%, dwarfing the 3.2% average increase for the same months in 2017-2019, according to research from Apartment List, an online marketplace for apartment rentals. Although the monthly pace of increases has slowed since peaking at 2.6% in July, the January-October figure is still more than 2.5 times the current inflation rate.
  • College tuition and fees increased more than 5% between 2001-02 and 2012-13. But that trend reversed in the 2021-22 academic year, with average published tuition and fees falling after taking into account red-hot inflation. After adjusting for inflation, tuition and fees at private four-year nonprofit institutions fell 1.65% to an average $38,070 from the year before, while four-year public schools slipped more than 2% to $10,740, according to the College Board.

Have a question, comment, or story to share? You can reach Medora at medoralee@thebalance.com.