People shop at a grocery store on June 10, 2022 in New York City.
Spencer Platt | Getty Images
The average U.S. household is spending $433 more per month on the same goods and services than a year ago, according to Moody’s Analytics analysis of October inflation data.
Although down slightly from the monthly figure of $445 in September, stubbornly high inflation stretches the typical budget.
“Despite weaker-than-expected inflation in October, households are still feeling pressure from higher consumer prices,” said Bernard Yaros, economist at Moody’s.
Consumer prices jumped 7.7% in October from a year ago, according to the US Bureau of Labor Statistics. This rate is down from 9.1% in June, which marked the recent peak, and the data suggests that inflation could fall further in the coming months. However, the October rate is still near the highest levels since the early 1980s.
The wages of many workers have not kept pace with inflation, which means they have lost purchasing power. According to the BLS, hourly earnings fell 2.8% on average in the year to October after controlling for inflation.
However, the impact of inflation on household portfolios is not uniform. Your personal inflation rate depends on the types of goods and services you buy and other factors such as geography.
“We are seeing increasing signs that peak inflation is likely behind us, and that should bring some relief to demographic groups that have been disproportionately affected by uncomfortably high inflation over the past year. like younger, rural Americans, as well as those without a bachelor’s degree,” Yaros said.
Moody’s estimate of the impact of inflation in dollars analyzes the annual inflation rate for October and typical household spending as described in the Consumer Expenditure Survey.
‘All these little decisions’ add up
Households can take some steps to lessen the impact – and most are unlikely to feel well, financial advisers say.
“There is no silver bullet,” Joseph Bert, a certified financial planner who is president and CEO of Certified Financial Group, told CNBC. The company, based in Altamonte Springs, Fla., ranked No. 95 on the 2022 CNBC Financial Advisor 100 list.
“It’s all those little decisions that add up at the end of the month,” Bert said.
First, it’s critical to separate fixed spending from discretionary spending, said Madeline Maloon, a financial adviser at San Ramon, Calif.-based California Financial Advisors, which ranked No. 27 on CNBC’s FA 100 list.
Fixed expenses are expenses for essentials such as a mortgage, rent, food, transportation costs and insurance, for example. Discretionary costs include expenses, for example, for dining out or vacations – things people appreciate but don’t necessarily need.
There’s often less flexibility to cut fixed expenses, which means non-essential spending is the budget area where households are likely to have to make cuts if they want to save money, Maloon said.
Households may need to ask questions, Maloon added, such as: Is that new car necessary? Can I buy a used car or a cheaper model instead? Is a home remodel essential or something that can be put on hold and re-evaluated at another time?
Americans may also consider substitutions: traveling somewhere closer to home instead of a more expensive vacation destination farther away, or staying in cheaper accommodation, for example. Or maybe get a haircut every eight to ten weeks instead of every six.
They can also reassess monthly subscriptions — to clothing and streaming services, for example — which can often serve as “money leakers,” Maloon said. Some may be lightly used but still suck money from your account every month.
“If you continue to live the same lifestyle, you pay more for it,” Bert said.
Every buying decision usually has an alternative, and people trying to save money can seek out a cheaper option whenever possible, Bert said.
There are also ways for households to save money on their fixed expenses. Compared to groceries, consumers can stock up on basics, shop with a list of foods, compare stores to find the best deals, and change what they eat, for example.
Consumers who commute to work and spend a lot on gas, for example, may be able to cut their transportation budget by using a price-tracking service, paying cash, being more strategic about driving times, and by signing up for loyalty programs.
It’s important, Bert said, that people avoid funding higher costs with a credit card or through a withdrawal or loan from a retirement plan.
“It’s the worst thing you can do,” he added. “You are going to pay a huge price for this in the years to come.”
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