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The Pandemic Strikes Back | 11 Ways To Combat An Increasing Consumer Price Index

September 02, 2021 7 min read

what is cpi?

No matter which news station you tune into today, it appears that things are holding steady in the economy… for the moment.

But you may keep hearing a term being casually tossed around that sounds like it should be more worrisome than it’s being presented in the media.

What the heck is a CPI?

Why do these news anchors and so-called “fiscal forecasters” keep mentioning “we can expect to continue seeing an increasing Consumer Price Index?”

I’m sure you can agree with this opinion, but whenever the talking heads mention a term several times, all while being unclear as to why it’s being brought up ad-nauseum, it’s typically never a good sign.

At least not for the average hard-working American. I just want to know what an increasing CPI is...

And if it’s going to personally cost more money to receive a lot less of what I need.

Like most other times, you hear a confusing term being thrown around without clarity; it typically means there is something to worry about.

They tell you it’s okay, and there’s nothing to be worried about.

But you know the truth… Any time they tell you not to worry, you should start preparing.

What is a CPI?

Why do these news anchors and so-called “fiscal forecasters” keep mentioning “we can expect to continue seeing an increasing Consumer Price Index?”

I’m sure you can agree with this opinion, but whenever the talking heads mention a term several times, all while being unclear as to why it’s being brought up ad-nauseum, it’s typically never a good sign.

At least not for the average hard-working American. I just want to know what an increasing CPI is... And if it’s going to personally cost more money to receive a lot less of what I need.

Like most other times, you hear a confusing term being thrown around without clarity; it typically means there is something to worry about.

They tell you it’s okay, and there’s nothing to be worried about. But you know the truth… Any time they tell you not to worry, you should start preparing.

What is the Consumer Price Index

So I guess the reason why the talking heads never take a breath to explain what the Consumer Price Index definition is is that it’s actually kind of simple to understand.

A Consumer Price Index is simply a metric that measures the average change in prices consumers pay for a market basket of goods and services over time.

The metric is calculated by the combined fees paid by two groups, All Urban Consumers (CPI-U) and Clerical Workers & Urban Wage Earners (CPI-W).

By items purchased by both. The time-sensitive rates are in constant fluctuation due to inflation (rising prices) and deflation (falling prices) reports.

A CPI report is meaningless without the context of a previous market state to compare them to.

A rising consumer index is primarily beneficial to America’s economy after the value of the dollar increases, production costs remain the same, and what is referred to as “true inflation” occurs.

This takes place when an economy expands due to an increased velocity of monetary circulation (which simply means a whole lot of people are spending a lot of money all at once for no particular reason) and not as a result of the increased cost of producing goods and services.

Consumer Price Index and Inflation

Several different types of inflation target both/either consumers and producers in different ways. To slow down the rapid free-spending, inflation occurs, the value of our currency is adjusted, and the CPI documents the adjustment.

When a currency's value decreases, its exchange rate falls to other currencies. This, however, is contingent on whether other countries' inflation rates are lower than yours.

The Federal Reserve keeps an eye on pricing increases to ensure that the economy stays on track. If the Federal Reserve detects excessive inflation or deflation, it uses monetary policy tools to intervene.

For example, repressed Inflation is frequently imposed against manufacturers and retailers when the CPI increases to protect the American People.

Repressed Inflation is a form of price control that protects consumers from exploitation due to increased demand.

Many approaches are employed to manage inflation; some are effective, while others may have negative consequences.

Controlling inflation through wage and price regulations, for example, can result in a recession and job losses.

Comparing The CPI U Rate for 2020 and 2021

The Consumer Price Index for Urban consumers declined rapidly after the pandemic forced many businesses to close their doors for good.

However, this year, the CPI-U has steadily increased as cities begin to experience a wealth of new business ventures filling the vacant lots of foreclosed businesses.

While the overall CPI-U (unadjusted) rose by only 1.4% in 2020, it has thus far increased by 5.4% collectively on all goods and services for the first half of 2021. The incline for each month was recorded between 0.6 and 0.9 percent.

What is the CPI for 2021?

(Remember, the rates for a single CPI at any given time are pointless without bearing the context of time-period statistics to compare them to.) Many indexes are increasing due to post-pandemic inflation and seasonal spending changes; the highest rates affected include energy and food.

For example, in June, the Consumer Price Index for All Urban Consumers rose 0.9 percent on a seasonally adjusted basis, rising 5.4 percent over the last 12 months, not seasonally adjusted.

The index for all items less food and energy increased 0.9 percent in June, up 4.5 percent over the year.

11 Ways to Combat Increasing CPI

There are ways to guarantee yourself protection from a harmful increase in the Consumer Price Index during moments of post-pandemic inflation.

And, luckily, not all of them require a degree in Micro/Macro Economics or Advanced Financing to take advantage of.

Thank Goodness!

These opportunities come in the forms of both fiscal and physical (some of which you can eat).

Taking advantage of both will not only guarantee the value of your buck stays high but will also be worth more when the CPI claims prices are expecting to soar.

Use the CPI for Escalation

The Bureau of Labor Statistics has published a list of proactive measures involving Escalation to combat a rising CPI on your assets and payments. Escalation agreements often use the CPI to adjust costs for changes in prices.

The most frequently used escalation applications are collective bargaining agreements, rental contracts, insurance policies with automatic inflation protection, and alimony and child support payments in the private sector.

1. Be sure to define any base payment for anything that may become subject to escalation. I.e., rent, wage rates, alimony, etc.

2. Identify Which Type of CPI will be used to Escalate Your Base Payment

It’s not a one-size-fits-all metric. The CPI will vary by CPI-U and CPI-W based on population coverage and market influence. The area coverage rates also differ from one city to county to state region. The period defined will also be significant depending on how the market has fluctuated in that window.

3. Specify a reference period in which your CPI will be measured

When your assets payments are being charged for the CPI range of a specific period, double-check to see if they attempt to swindle you by setting a rate based on a more extended period where the CPI had a more significant increase than an accurately measured period relating to your investment.

4. Make Sure Rates Occur During Accurate Intervals of Time

For example, adjustments are fixed quarterly, semi-annually, and annually. If your CPI is changing irregularly, you may be charged unfairly and illegally. Likewise, when you are issued CPI-based adjustments which surprise you out of nowhere, they may be fraudulent and subject to federal charges.

5. Determine the Adjustment Formula for your Payments.

Usually, the change in fees is directly proportional to the percent change in the CPI index between two periods. Consider whether to make an allowance for a “cap” that places an upper limit on the increase in wages, rents, etc., or a “floor” that promises a minimum increase regardless of the percent change (up or down) in the CPI.

Invest Against Future Inflation

There are simple investments you can make today that will protect you against a rising CPI. As the price rises for everyday goods and services, you can guarantee you only pay one fixed price, while CPI indicates inflating prices for everyone else. You may even make a solid profit on those investments in the long run.

6. Invest In Real Estate

It’s a popular choice. Not only because a rising CPI increases the resale value of the property over time, but because real estate can also be rented out to tenets generate income. And, as prices rise over time, adjustable rental agreements can rise with pandemic inflation as well.

7. Stockpile Sustainable Commodities to Use or Resell

Any item with tangible value is a means of protecting yourself when pandemic inflation raises the CPI. While the leading commodity people invest in is Gold, people also invest in stockpiling things like long term survival food, tools, and spices. The items can be used for personal sustainability and can be sold at a price you set when it comes to barter and trade.

8. Invest in Mortgage-Backed Stocks or Collateralized Debt Obligations

These securities are designed to inflate in value as the rate of inflation and CPI rises. The investors themselves do not own the collateral and debts attached to these assets, but their investments are in the securities whose underlying assets are in the loans.

9. Invest in Bonds

Investing in bonds may seem counterintuitive as inflation is deadly to any fixed-income instrument. However, Treasury Inflation-Protected Securities (TIPS) are a popular option because it protects against unpredictable spikes in the Consumer Price Index.

10. Consider a direct investment in TIPS that can be made through the U.S. Treasury or via a brokerage account.

They are also held in some mutual funds and exchange-traded funds. For a more aggressive play, consider junk bonds. As it's officially known, high—yield debt tends to gain in value when inflation rises, as investors turn to the higher returns offered by this riskier-than-average fixed-income investment.

11. Consider built-in revisions on contractual agreements with rates depending on CPI.

The ability to pivot on a contractual agreement is a critical favor to your benefit. Built-in modifications may not allow you to rewrite your understanding from the top down, but they at least provide you alternative options when the CPI-U jumps unexpectedly. The Bureau of Labor provides a list of methods for you to research how you can implement protective measures to fall back on when negotiating financial contracts involving rates based on the consumer price index.