The commonly used rate of inflation, 3%-4%, is used in so many formulas for retirement, investing, and “cost-of-living” increases. But, is that the right number? A recent news story released by the American Institute for Economic Research claims that the real rate of inflation is closer to 8%.
I won’t pretend to understand all of the economic talk in that article. What I do understand is that they are claiming to be using numbers that are more reflective of the average American’s spending habits. More importantly, if their research is even partially correct, it means that the rate of inflation could be significantly higher for some parts of the populace. Not only does this affect the available funds for saving and spending, it could affect the numbers that many people are using for estimated retirement needs.
The research is still fairly new, as it doesn’t appear that they have that much historical data to back up their claims. But, they do present a strong argument for a change in what we assume inflation to be, and where we get that information from.
How would a 8% inflation rate affect your finances?