Here is What the Inflation Numbers Really Mean
Understanding the inflation (CPI) numbers using a simple math trick with real world examples.
There are plenty of articles in the financial news media reporting on inflation, and sadly they all share the same traits:
- Report the data and expect the reader to know what it means.
- Drawing conclusions and telling the reader who to blame.
- Printing vague definitions using the most convoluted financial language that only an Econ101 professor would enjoy.
In general, none of the media outlets are willing to describe to readers — in simple terms — what the current inflation numbers mean to their day-to-day life and finances. So I will.
By sharing a math trick I picked up along the way, I want to make the complicated — simple.
This math exercise will help you simultaneously calculate compounding interest rates and develop a sense of when consumer prices will double, triple, quadruple, etc. Don’t worry it’s super easy to do, and I’ll share plenty of examples.
Afterward, I will spotlight a chart that shows just how bad the current inflation situation is compared to previous years. This visualization gives context to the growing crisis and may inspire a sense of urgency. Perhaps, it may embolden you to take action like requesting a higher-than-normal pay raise to compensate for higher-than-normal cost of living.
Ultimately, you should gain a more fundamental understanding of inflation and how bad the problem really is.
What Does 8.5% Inflation Look Like?
The simplest way to understand the inflation rate is to use The Rule of 72. This math trick will help you quickly calculate growth at a compounded rate. You can use this method for calculating investment returns, economic numbers, interest rates on loans, and more.
To use The Rule of 72, all you have to do is divide 72 by the growth rate (% rate). The answer to this equation will tell you how many years it would take for the investment to double.
72 ÷ Growth Rate = Number of Years for…