Money Crashers: 7 Effects of Inflation & How to Protect Yourself From the Consequences

Economists agree that the U.S. is now officially in a recession — the most severe one in most people's lifetimes. What they disagree on is what its long-term effects will be. It could be quick and brutal or long and grinding; it could permanently damage some industries while boosting others; and most puzzling of all, it could cause the dollar to either grow or shrink in value. A recent "Planet Money" episode explains how the current recession could lead to either runaway inflation, in which your money is worth measurably less each week than the week before, or deflation, in which both prices and incomes sink through the floor. Both of which are very, very bad.

To help prepare its readers for both possibilities, Money Crashers updated its article on deflation, and it fell to me to tackle the one on inflation. I explain how inflation can be both helpful and harmful — on the one hand, raising prices so your money is worth less, but on the other, boosting incomes so you have more of it. And I outline how inflation can affect all aspects of your financial life —cost of living, income, the job market, government benefits, debt, savings, and investments — and how to plan for these effects so you get more of the upside of inflation and less of the downside.

7 Effects of Inflation & How to Protect Yourself From the Consequences

Since this is a fairly big topic, there are two other articles on inflation coming out soon as well: one on the causes of inflation and one devoted specifically to protecting your retirement portfolio from inflation. Keep an eye out for those in the near future.