What are the benefits of tracking inflation rates?

The inflation rate in the US is calculated at a given time using a basket of assorted goods & services. The change in the price of this basket of goods & services over the course of a year can be regarded as YoY CPI inflation. In laments terms, CPI = consumer price index. PPI is inflation on the producer end (Producer Price Index).

High inflation erodes the purchasing power of money. This means when prices rise, each unit of currency buys fewer goods and services. This can impact people's ability to afford the same standard of living. Likewise, low inflation can indicate economic stagnation which is not good either. People should understand the effect of inflation on savings and investments. If the rate of return on investments is lower than the inflation rate, real (inflation-adjusted) returns may be negative, meaning your money loses value in real terms. Therefore, one needs to diversify into asset classes which beat inflation such as equity or real estate.

The inflation rate is important for a host of reasons, but perhaps equally important are inflation expectations. Inflation expectations need to be anchored for an economy to successfully function. In other words, folks need to have some gauge on how much their house, car, medical bills, etc. will increase on a yearly basis. The inflation rate is important because it can impact everything from the labor market, to US equity & financial asset prices, & the global economy frankly (not a stretch).

Tracking inflation is key for businesses as it influences the cost of goods, services, and consumer purchasing power. High inflation means higher costs and possibly less customer spending. Conversely, low inflation can stabilise costs, encouraging more spending. Inflation affects business expenses too, like wages, raw materials, etc. Tip: Examine your major costs, and identify what influences them - inflation, supply, etc. Monitor these factors and develop risk mitigation plans when appropriate. By tracking inflation rates, businesses can make informed decisions on pricing, cost management and investments, helping stay profitable and competitive.

Tracking inflation is crucial to both consumers and businesses for the same essential reason: future planning. Businesses need to know if they are in cost cutting phase, or if the economic environment is conducive to growth. Inflation has a huge impact on that. Consumers likewise need to know how much their car payment, mortgage, etc. is going up by due to inflation. Consumers & businesses are actually extremely interested in the inflation rate, which I think may have become somewhat of a misconception in this cycle.

Inflation is not an abstract concept to asset prices, corporate fundamentals, or the broader US/global economy. This cycle it seems like many have suggested the US Fed should essentially deprioritize inflation to interest rate policy. I completely disagree. I view the potential of hyperinflation as an incredibly serious threat I’m glad we began to take decisive action on, even if we were late with misidentifying “transitory” versus “surge” inflation. *Hopefully* a lesson learned.