Inflation pushes U.S. household spending to $433 a month

American households are still shelling out huge sums of extra money for the same products as last year as inflation hits the country.

Shoppers are spending an average of $433 more per month than in 2021, despite buying the same goods and services.

While the numbers are down slightly from September’s monthly figure of $445, Moody’s Analytics analysis of October data shows that inflation is still weighing on budgets.

Consumer prices jumped 7.7% in October from a year ago, according to the US Bureau of Labor Statistics (BLS).

This rate is down from 9.1% in June, which marked the most recent peak, and the data suggests that inflation could fall further in the coming months.

The wages of many workers have not kept pace with inflation, which means they have lost purchasing power.

Hourly earnings fell 2.8% on average in the year through October after controlling for inflation, according to the BLS.

The October rate, although down from September, is still near the highest levels since the early 1980s.

The impact on households is however not rationalized, with personal inflation rates on the types of goods and services an individual buys and other factors like geography playing a role.

Bernard Yaros, an economist at Moody’s, spoke to CNBC and said “peak inflation is probably behind us.”

“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. “, did he declare.

‘[For example] younger, rural Americans, as well as those without a bachelor’s degree.

Joseph Bert, a certified financial planner who is president and CEO of Certified Financial Group, told CNBC that “there is no silver bullet.”

“It’s all those little decisions that add up at the end of the month,” he said.

Madeline Maloon, a financial adviser in San Ramon, Calif., told the broadcaster there was less flexibility to reduce fixed expenses.

Instead, Maloon said non-essential items are likely to be cut if individuals want to save money.

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. You will pay a huge price for this in the years to come,” he added.

President Joe Biden last week hailed the new report that showed inflation was down, describing the change as “progress” and proof that his economic plan was working.

The consumer price index came in at 7.7% in October, marking the fourth consecutive month of decline from the 40-year high of 9.1% reached in June.

Core inflation, excluding volatile food and energy prices, fell to 6.3% on an annual basis, after hitting a four-decade high of 6.6% in September.

Biden said the drop in the number shows “we are making progress in bringing inflation down.”

“My economic plan is working and the American people can see that we face global economic challenges from a position of strength. It will take time to get inflation back to normal levels – and we may see setbacks along the way – but we will keep going and help families with the cost of living,” he said in a statement. communicated.

Biden also said the numbers showed food prices weren’t rising as high as they once were, a much-needed break before the holidays.

While food prices increased by 0.6%, the pace was much slower compared to previous months.

The price of food eaten at home rose 0.4%, the smallest increase since December 2021. Prices for meat, poultry, fish, eggs, cereals and bakery products rose. But fruits and vegetables cost less.

And he warned Republicans, who are poised to take a majority in the House of Representatives, that he “will oppose any effort to undo [his] program or to aggravate inflation.

Republicans are already considering rolling back parts of the Cut Inflation Act, including its new higher corporate taxes and some of its climate initiatives.

However, they would also need Senate control. Biden still has his presidential veto pen to stop any congressional action.

In the midterm elections that ended on Tuesday, nearly half of voters cited inflation as their top concern, according to VoteCast, an extensive survey of more than 94,000 voters nationwide for the ‘Associated Press by NORC at the University of Chicago.

About 8 in 10 people said the economy was in bad shape and a slim majority blamed President Joe Biden’s policies for worsening inflation. Just under half said factors beyond Biden’s control, such as Russia’s invasion of Ukraine, were to blame.

The October figures were all below economists’ expectations and Wall Street reacted positively, with the Dow Jones Industrial Average gaining 750 points, or 2.31%, at the open to hit 33,264.

Used car prices, which soared last year as a shortage of computer chips sharply reduced the availability of new cars, fell 2.4% from September to October.

And prices for energy services fell, thanks to a 4.6% monthly decline in the price of natural gas utilities, as natural gas prices declined from recent highs.

However, gasoline prices rose 4% from September to October, reversing three consecutive months of monthly declines.

Even with last month’s attempt to ease inflation, the Federal Reserve is widely expected to continue raising interest rates in an attempt to stem the persistent rise in prices.

Many economists are warning, however, that by continuing to tighten credit aggressively, the Fed risks triggering a recession by next year.

So far this year, the Fed has raised its benchmark interest rate six times in large increments, increasing the risk that prohibitive borrowing rates – for mortgages, auto purchases and other expensive spending – tip the world’s largest economy into recession.

Inflation was near the top of many voters’ minds during the midterm congressional elections.

Their economic concerns reportedly contributed to the Democratic loss of seats in the House of Representatives, though Republicans failed to secure the huge political gains many expected.

Even before Thursday’s numbers, inflation by some measures had begun to subside and may continue to do so in the coming months.

Most indicators of workers’ wages, for example, show that the strong wage increases of the past 18 months have stabilized and started to decline.

Although worker compensation is not the main driver of rising prices, it can add to inflationary pressures if companies compensate for higher labor costs by charging customers more.

With the exception of automakers, which are still struggling to acquire the computer chips they need, supply chain disruptions have largely subsided.

Shipping costs are back to pre-pandemic levels. Backup cargo ships off the Port of Los Angeles and Long Beach have been cleared.

And as the declines in new rents that have emerged in real-time metrics from sources such as ApartmentList and Zillow begin to be captured in upcoming government metrics, this factor should also reduce inflation.

Even though many fear the economy could fall into recession next year, the country’s labor market has remained resilient.

Employers have added a healthy average of 407,000 jobs per month, and the unemployment rate is just 3.7%, near a half-century low. Job vacancies are still at historically high levels.

But the Fed’s rate hikes have inflicted severe damage on the US housing market.

The average rate on a 30-year fixed mortgage has more than doubled over the past year, topping 7% before falling slightly last week. As a result, housing investment collapsed in the July-September quarter, falling at an annual rate of 26%.

Rising mortgage rates depressed sales. Home prices are slowing sharply from a year ago and have started to decline on a monthly basis. The cost of a new apartment lease is also falling.

Yet, because of the way the government calculates housing costs, changes in housing costs are delayed by several months in the consumer price index.

The government measures the cost of all rents, including most rents under existing leases. However, asking rents for new leases are slowly decreasing.