Inflation is the process by which money loses its purchasing power over time. What cost $1.00 ten years ago might cost $1.50 now and $2.00 in a few years. This phenomenon is caused by inflation.
If you follow the news, you know that the U.S. is experiencing a wave of inflation, with the inflation rate reaching nearly 10% at some points. This means that many products and services are seeing a rise in prices.
At the same time, people don’t see similar income increases. As a result, their purchasing power is decreasing.
Inflation can happen due to an increased demand for goods and supply shortages that aren’t met with decreases in demand. Economists generally believe a low, steady inflation rate is good for the economy.
Inflation can happen with any currency, including dollars, euros, or yen. However, it can also happen with travel points. We’ll break down how this works and help you learn ways to mitigate the impact of inflation on your valuable travel rewards points.
How Inflation Affects Travel Points
Travel rewards, including the points and miles you earn using a rewards credit card, are a great way to score free travel. You can cash in points for hotel stays or redeem miles for flights.
With inflation, the dollar price of those hotel stays or flights tends to rise. For example, if inflation is 10%, a flight worth $200 at the start of the year would cost $220 at the end of the year.
Just like inflation leads to higher gas prices and increased costs for other things, it also raises prices in the travel industry.
Furthermore, as the severity of the COVID-19 pandemic declines, travel demand is increasing. Most Americans want to enjoy vacations, go on road trips, and return to pre-pandemic levels of travel. Many people are willing to pay record-high prices for flights, rental cars, and lodging.
Since people couldn’t travel throughout the pandemic, they stockpiled travel rewards like hotel points and miles because they could not use them due to lockdowns and travel restrictions.
With many people having rewards they wanted to spend, some airlines and hotels chose to increase the price of various redemptions.
For example, in March of 2021, Southwest boosted prices for bookings made with Rapid Rewards points. United Airlines changed from dynamic point pricing to set pricing per flight. IHG and Radisson Hotels adjusted room prices, mainly in the form of price hikes.
These price increases reduced the purchasing power of individual travel points and miles. In effect, they caused inflation in these currencies. This means that travelers need more points or miles to offset their travel costs.
Like regular currency, travel rewards points will generally lose value over time as travel companies look to reduce their liabilities and force travelers to earn more rewards before they can redeem them.
How to Avoid Negative Effects of Travel Points Inflation
It’s important to remember that airline miles and travel rewards points aren’t true currencies. The companies issuing these rewards have full control over them and are free to change their values whenever they want or even eliminate the rewards schemes.
If you want to use these points to help you save on travel spending, there are a few things you can do to mitigate the impact of points inflation.
Use What You Earn as Quickly as Possible
Regular currencies typically see slow and steady inflation over months or years. However, travel points inflation typically takes the form of one-off adjustments to rewards charts or increasing redemption prices.
For example, an airline might offer a ticket for international travel for 40,000 miles for two years. Then, that airline might increase the price per ticket to 50,000 miles. A few years later, it could boost the price to 60,000 miles.
If you earn rewards points and use them before the airline changes their redemption value, you won’t have to worry about rising costs making your points less valuable.
This means that using points quickly and avoiding stockpiling is a good way to mitigate the effects of travel inflation.
Have a Redemption in Mind When Earning
Like using what you earn quickly, try to avoid earning rewards speculatively. Credit card welcome bonuses can be a great way to earn huge rewards quickly. However, if you go this route, you should ensure you’re going after those points for a reason and plan to pay off the card balance in full monthly to avoid an interest charges.
Have a specific goal and redemption in mind, and don’t just earn points speculatively with hopes that you’ll use them. Otherwise, you likely won’t find a way to use those points before their value decreases.
Knowing how many points you’re going to earn, how you plan to use them, and when you plan to redeem them can make it easier to avoid stockpiling points and lets you avoid the pain of reward devaluations.
Look for Flexible Rewards Programs
If you have travel rewards, you’re beholden to the issuer of those points. For example, if you have Southwest miles, there’s nothing stopping Southwest from making those miles worth less or changing how you can redeem them. You’re entirely reliant on the decisions of a single party.
However, you might have less to worry about if you have points with a more flexible program. For example, Chase and American Express offer rewards cards that earn generic points.
With these programs, you can redeem your points in many ways, including for travel. You can even transfer points to specific travel partners. For example, you can exchange Chase points for Southwest miles at a one-to-one ratio.
Plus, flexible programs can let you mitigate the risk of rewards devaluation. For example, if one of American Express’s travel partners reduces the value of its rewards points, you can transfer your rewards to one of Amex’s other partners or redeem them for something other than travel.
The Bottom Line
Inflation impacts everything, from gas prices to food to travel. It also has an impact on the value of the travel rewards that you earn.
In general, miles and rewards points are worth less over time as card issuers and travel companies increase the number of points or miles you need to earn a free trip.
Try to use points shortly after you earn them and focus on flexible rewards programs that give you more options. If you do, you can minimize many of the impacts that inflation has on the value of your travel rewards.