2021 Inflation Analysis

  • Agribusiness
  • 1/17/2022

Inflation in 2021 has not been this high since the early 1980s. We review the numbers. You may want to lock in low interest rates now.

Many income tax rates, exemptions, deductions, etc. are adjusted each year for inflation.  The annual inflation numbers are based upon the year ended August 31.  This gives the IRS enough time to determine the actual inflation number for the following year.

Inflation has been fairly tame for the 20 years leading up to 2020.  However, the pandemic has certainly changed this and the change has been dramatic.  We have not seen this high of inflation since the early 1980s and I am old enough to remember that period was not much fun to live through.

The following table shows the inflation numbers for 2020 and 2021. The monthly change column shows the amount of change compared to the previous month and the annualized column shows the amount of inflation if that months number was annualized (i.e. multiplied by 12).  The final inflation number for 2021 was about 6.7%

  2020 2021 Monthly Change Annualized
Jan         257.971         261.582 0.43% 5.10%
Feb         258.678         263.014 0.55% 6.57%
Mar         258.115         264.877 0.71% 8.50%
Apr         256.389         267.054 0.82% 9.86%
May         256.394         269.195 0.80% 9.62%
Jun         257.797         271.696 0.93% 11.15%
Jul         259.101         273.003 0.48% 5.77%
Aug         259.918         273.567 0.21% 2.48%
Sep         260.280         274.310 0.27% 3.26%
Oct         260.388         276.589 0.83% 9.97%
Nov         260.229         277.948 0.49% 5.90%
Dec         260.474         278.802 0.31% 3.69%

As you can see the trend of inflation in 2021 is not linear.  There are some small months and some very large months.  The Federal Reserve finally has realized that this may not be transitory and we will likely see at least 4 increases in the discount rate and each increase may be larger than normal.

This may result in interest rates being perhaps 2-3% higher at the end of 2022 than at the beginning.  Even though rates have ticked up some, it may be very prudent to lock in low rates now.

 

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

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