Inflation Undermines that Raise You Received
Did you receive a raise at work this year? Before congratulating you, I would then ask, did you consider inflation? At the end of April, the US dollar index, which collectively measures the value of the US dollar against six other prominent currencies, hit its lowest point in almost three years.
With a rising rate of inflation, this may not only cancel out any raise you received, but inflation may also actually reduce your purchasing power. Inflation during April totaled 0.4%, according to the consumer price index [.pdf] released yesterday from the Labor Department. While this amount seems petty, April marked the tenth consecutive month of inflation for the US dollar, as well as the fourth consecutive month to increase 0.4% or more.
Over the past twelve months, the rate of inflation totals 3.2%, according to the link above. As a result, if you would like to know whether you actually received a raise, you must factor whether your raise was greater than 3.2% of your income. If it wasn’t, well you may be getting paid more than last year, but your purchasing power has actually declined.
We typically assume a raise allows one to purchase more goods than one could previously purchase, but this is clearly a dangerous assumption, due to inflation. As depressing as this is, there is a method to reap large profits from inflation, albeit via a particularly risky method.
While you could purchase gold and likely reap profit, the most profitable method to benefit from inflation of the US dollar is to participate in currency exchange, also known as forex, which would involve “going short” against the long-term value of the US dollar. When investors “go short” against the long-term value of the US dollar, they are predicting the current value will be greater than the future value.
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