Inflation is an increase in the level of consumer prices or a decline in the purchasing power of money caused by an increase in available currency and credit beyond the proportion of available goods and services.

The long-term dollar amount you are awarded through a structured settlement can be worth much less by the time the payouts are 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 steadily increasing inflation, the cost associated with things 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%. Less than 20 years ago, the average house sold for less than $70,000 but it costs well over twice that much now. So money received today is worth less than it was in the past because everything costs more today. 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, the $32,000 is worth half as much when paid in ten years from now, just from 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 "rate" 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, doctors' and dentists' fees, drugs, and others goods and services that people require for day-to-day living. Prices are 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 a Fast Forward of your settlement. Call us today at 888-594-1195.