Assignment:
1. What is inflation and the CPI? Why is it relevant to the engineering design work of an ME and the company in which an ME would work? Why is it relevant as you plan for your personal investments and eventually retirement?
a. Inflation causes money to lose purchasing power. When prices inflate, you can buy less with the same amount of money. Inflation makes future dollars less valuable than present dollars. The inflaition rate is measured as the annual rate of increase in the number of dollars needed to pay for the same goods and services. The Consumer Price Index (CPI) measures prices for consumers in the U.S. Market Place. CPI tracks tracks the cost of a standard bundle of consumer goods from each year.
This type of information is relavent to design work because when considering the cost of materials and equipment, it is necessary to incorporate inflation. This will determine if a company can actually afford their next project.
At retirement you will want a retirement income large enough to offset years of inflation that that occurred while you are working. Therefore, you need to project what the cost of living will be when you reach retirement (and beyond) and have sufficient funds set aside for a cost of living in retirement much higher than it is today. Hence, may need to save more to allow for inflation to happen.