Your guide to navigating inflation: Calculate, invest and profit amid rising prices

Overall inflation should ease in coming months as gasoline and other energy prices continue to pull back, but core inflation is expected to drift higher as the supply snags are ironed out.


Another month, another record-setting leap in prices.

Inflation hit a fresh 40-year high in January as a drop in energy costs wasn’t enough to offset a steady march upward for staples such as food, rent and cars amid stubborn supply-chain bottlenecks and worker shortages.

Consumer prices jumped 7.5% last month compared with 12 months earlier, the Labor Department reported in the most recent CPI report. It marked the steepest year-over-year increase since February 1982.

Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation accelerating in the past year.

When measured from December to January, inflation was 0.6%, the same as the previous month and more than economists had expected. Prices had risen 0.7% from October to November and 0.9% from September to October.

Economists expect overall inflation to ease in coming months as gasoline and other energy prices continue to pull back and crude oil prices fall. But core inflation is expected to drift higher before edging down as the supply snags are ironed out.

►CPI Inflation Rate:Inflation reaches a 40-year high with prices up 7.5% in last year

Inflation calculator

►Inflation's impact:Your Starbucks run is about to get more expensive – again

Housing market

Mortgage rates will go up this year after hitting historical lows during the pandemic, but not by much, said Lawrence Yun, chief economist with the National Association of Realtors (NAR), who oversees NAR's research group. The NAR thinks it will be around 3.7%, compared to 3.4% currently. That's still historically low.

Although there might be a home sales drop of about 2% in 2022, Yun still predicts sales will outdo pre-pandemic levels. The NAR anticipates that annual median home prices will increase by 5.7% in 2022. 

Yun also believes there are still between 5.5 to 6.8 million housing units that would need to be built to meet the market demand for homes.

►Housing prices:Will there be a housing market correction in 2022 after two years of 'hyper-growth'?

Will the Fed increase the interest rate to combat inflation?

Congress allocated $4 trillion to consumers and companies – primarily through four COVID-19 relief bills, according to estimates from the Committee for a Responsible Budget. 

The Federal Reserve also enacted measures to protect the economy in March 2020 by setting its target interest rates to between 0% and 0.25% and embarking on a bond-buying program that the Committee for a Responsible Budget estimates cost $3.8 trillion. 

The Fed has already announced plans to wind down the bond purchases, but its biggest decisions on raising interest rates – possibly as many as four times in 2021 – could come as early as March, according to a Goldman Sachs report this week.

Federal Chair Jerome Powell acknowledged in January that high inflation has emerged as a serious threat to the central bank's goal of helping put more Americans back to work, and the Fed is prepared to raise rates as a result:

“If inflation does become too persistent, if these high levels of inflation get entrenched in our economy ... that will lead to much tighter monetary policy from us, and it could lead to a recession, and that would be bad for workers.”

►Interest rates:Inflation threatens historically hot US economy that's driving jobs and pay

Tips if inflation wreaking havoc on your retirement budget

It's no secret that these days, the general cost of living is way up. Consumers are paying more for everything from gas to groceries to utilities, and unfortunately, we could get stuck in this holding pattern of rampant inflation for many more months until things start to ease.

While seniors on Social Security did get a 5.9% cost-of-living adjustment to compensate for the rising cost of consumer goods, clearly, that raise is already falling short.

If you're retired, you may be struggling to stick to your budget given the recent rise in inflation. If that's the case, here are a few moves you might consider making.

  1. Withdraw more aggressively from your savings
  2. Tap your home equity
  3. Use your home as an income source

►Retirement:Inflation wreaking havoc on your retirement budget? Here's how to cope.

Profit during inflation

For consumers, inflation is raising jitters and for good reason— rising prices could wipe out gains or stall the nation's economic growth.

Recent Consumer Price Index reports have showed inflation nearing 40-year highs, but the warning signs have been there. Americans say being able to afford to pay their bills and inflation rank second and third, respectively, in a Monmouth University study released in late 2021. The coronavirus pandemic was first.

What’s an investor to do during inflation? For starters, don’t panic. Take sensible actions to manage your money and add peace of mind as the economic picture continues to evolve.

  1. Focus on stocks and max out your 401k
  2. Consider alternative investments
  3. Ask for a pay raise at work
  4. Don’t pay off low-interest loans early

Profit during inflation?:These 5 tips could help investors beat rising prices