How Inflation Has Affected Your Wallet Since 2000

Have you ever wondered why it seems like everything is getting more expensive year after year? The answer is inflation, which is a rise in the general level of prices. After the U.S. experienced an inflation rate of 2.26% the past 30 years, since the COVID-19 pandemic, the rate has more than quadrupled, hitting 9.1% in 2022. Inflation's impact on personal finances, salaries, and spending is important to understand for everyday consumers so they can adjust their budget and finances as needed.

Inflation hit these items the hardest

Since 2000, the Consumer Price Index (CPI), which measures inflation, has increased by over 74% across the board. This means, on average, the price of an item that cost $5 in 2000 costs $8.70 today.

However, the actual numbers vary wildly depending on the type of good or service. The two categories that have seen the highest rise in costs are healthcare and education:

• Hospital services: +220%
• College tuition: +178%
• College textbooks: +162%
• Medical care services: +130%
• Childcare: +115%
• Food and beverages: 82%
• Housing: 80%

The cost of healthcare has surged at an alarming rate, with the cost of hospital care more than tripling since 2000 and other medical care services more than doubling. The aging population has played a pivotal role in the surge of healthcare costs, as older individuals tend to require more medical attention and care. In addition, the prices of pharmaceutical products have also gone up.

In the 1960s and 1970s, college tuition costs were fairly predictable, keeping pace with inflation. However, in the mid-1980s, this trend began to shift, and tuition costs have since skyrocketed. Since 2000, tuition prices have surged by a whopping 178%, and textbook costs have increased by 162%.

Prices have decreased for these goods

However, not all consumer goods or services have seen an increase in prices since 2000. Some consumer products, such as toys, cars, TVs, and computers have gotten cheaper due to increased competition, new technology, and global supply chains.

In fact, the average cost of TVs has decreased by 97%. Previously considered a luxury item, flat screen televisions have become significantly more affordable in recent years. In the early 2000s, the cost of a flat screen TV was roughly 17% of the median income, which was $42,148 at the time.

However, with technological advancements and market competition, prices have rapidly dropped. Today, acquiring a new flat screen TV will cost you less than 1% of the U.S. median income ($54,132).

Here are the goods that have decreased in price since 2000:

• TVs: -97%
• Toys: -72%
• Computer software: -70.5%
• Cellphone service: -41%

The CPI for new cars, household furnishings, and clothing have remained relatively flat in price, even with higher inflation the past couple of years.

How to protect your money during high inflation

Inflation can be a frustrating and difficult situation for individuals to navigate. While it's impossible to completely shield ourselves from the effects of inflation, there are steps we can take to protect our money as much as possible.

Start by reviewing your budget and identifying areas where you can cut back on spending. Consider opting for alternative brands or items, and try to find ways to save money on specific purchases.

Prioritize investing in assets that are likely to appreciate in value over time. This includes stocks, real estate, and precious metals, among others. By taking a proactive approach and being mindful of your spending, you can mitigate the impact of high inflation on your finances.

Another strategy is to put cash in investments that are tied to inflation, like Treasury Inflation-Protected Securities (TIPS) or I bonds. TIPS and I bonds are designed to keep pace with inflation and are a safe place to hold your money during periods of high inflation.

Inflation has had a significant impact on our wallets since the turn of the millennium. Many consumer goods have gotten cheaper, but critical categories such as healthcare and education have skyrocketed, placing a heavy burden on families and individuals. Despite its negative impacts, we can still take steps to minimize the damage that inflation can cause to our budgets. By watching our spending and investing in assets that appreciate, we can make better financial decisions and stay ahead of inflation's curve.