The U.S. inflation rate has been recorded since 1913 and is typically measured using the Consumer Price Index (CPI) from the U.S. Bureau of Labor Statistics (BLS), reflecting the year-over-year percentage change in the cost of a basket of goods and services. From 1925 to 2024, the average annual inflation rate is approximately 3.1%. Following are long-term high and low years.
Highest Rate in 1917 during WWI
Lowest Rate in 1932 during the Great Depression
Kristen owns a small pet-sitting business and is concerned about inflation impacting her company’s finances. What are some things she can do to help alleviate the pressure inflation is having on her business?
Reducing expenses is the first step to protect her business against price increases. Kristen should also send out invoices immediately after she completes a project and not wait to invoice at the end of the month. And along the same lines, keep on top of receivables. Don’t let customers continue to book services without paying for previous work. And better yet, she should require immediate payment, either at the time of booking or after an assignment. The sooner she can get paid, the more spending power that money will have.
If Kristen can stock up on critical supplies like leashes, treats, or pet waste bags, she can lock in current costs and avoid future price increases.
And she should work toward engaging in more lucrative assignments.
Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.
There’s also disinflation, no-inflation, deflation, and stagflation.
Inflation is the overall rise in the prices of goods and services over time. When it spikes, stock investments may be attractive for investors willing to buy and hold for more than five years.
Disinflation occurs when price increases slow. During disinflation, you may be rewarded for accepting more investment risk and buying growth stocks.
No-inflation occurs when consumer prices rise by no more than 2% a year, creating price and economic stability and a good climate for most types of investments.
Deflation is a generalized economy-wide drop in prices. The U.S. has seen deflation only during the Great Depression in the 1930s and the Great Recession in 2009. During deflation, bonds with a fixed positive interest rate offer positive real returns.
Stagflation is characterized by slow growth, high unemployment, and inflation. TIPS, which, if held to maturity, are guaranteed to return your investments, may help weather stagflation.