Inflation is an increase in the general level of consumer prices or goods in an economy over time. Consequently, inflation erodes the purchasing power of money. 

The long-term dollar amount you are awarded through a structured settlement can be worth much less by the time the payouts are actually received. As time progresses, inflation causes a steady increase in the cost of living; however, your structured settlement payments may remain fixed or may not increase by the rate of inflation. This uneven relationship ultimately may result in the value of your settlement steadily decreasing with each passing year.

With a steady increase of inflation, the cost associated with everyday items and consumer goods naturally increases. For example, in 1980, a new car cost less than $15,000 and gas was less than 75 cents a gallon. Today, a new car costs twice that amount and gas has increased by over 300 percent. Less than 20 years ago, the average house sold for less than $70,000 but currently it costs over twice that amount. Therefore, the money you receive tomorrow is worth much less than its value now. This means your settlement payments received in the future will be worth much less than the same money received today.

The chart shows the declining value of annual payments of $32,000 as they are paid over time. In this example $32,000 is worth half that amount when paid 10 years from now, due to the impact of inflation.

The rate of inflation is calculated based on a statistic called the Consumer Price Index (CPI) which is compiled yearly by the Bureau of Labor Statistics. The inflation reflects the percentage change in the CPI from the previous year. The CPI is based on the prices of food, clothing, shelter, fuel, transportation fares, medical fees, prescription drugs and others goods and services that people require for daily living. These prices have been collected from 87 urban areas across the country, encompassing about 50,000 housing units and approximately 23,000 retail establishments such as department stores, supermarkets, hospitals and filling stations. All taxes directly associated with these items are also included in the CPI.

How this specifically affects you is something that a Client First Consultant can review with you in detail when we discuss your settlement. Call us today: (888)594-1195.