In the past year, the number is up 8.5%, meaning that a weighted average of the cost of commonly purchased goods and services has risen 8.5% in 12 short months.
If this pace keeps up, cash we have today will only buy half as much in 8 or 9 years as it does today. That fact is easily estimated using the Rule of 72.
I learned the Rule of 72 from my father sometime in the 1980s when the stock market was taking off and inflation was beginning to temper after a three-year run of double-digit inflation at the turn of the decade.
It’s a rule of thumb that lets you easily calculate how long it will take your money to double at a given rate of return. Take the number 72, divide by the rate of return, and that’s how many years it will take for your money to double.
The number 70 is actually a bit more accurate for monthly compounding, but 70 doesn’t have as many common denominators as 72, but you can basically use them interchangeably. You can also use the Rule of 72 to predict how long your purchasing power will be cut in half at a given rate of inflation. It’s the same calculation, essentially.
A little bit of inflation is good for a healthy economy. If consumers can expect prices to rise, they will be more inclined to spend money now rather than waiting for better prices later on.
The CPI increased 8.5% from March 2021 to March 2022. This is an average of the cost of many things, though. Medical care, for example, is up less than 3% year over year. Physician care specifically is only up 0.7%, which might explain why your wages aren’t keeping up with inflation if you’re a doctor.