People shop at a supermarket in New York City on June 10, 2022.
Spencer Plat | Getty Images
The average U.S. household spends $433 more monthly to buy the same goods and services as it did a year ago, according to an analysis of October inflation numbers by Moody’s Analytics.
While it’s slightly down from September’s monthly figure of $445, stubbornly high inflation is stretching the normal budget.
“Despite weaker-than-expected inflation in October, households are still feeling the pressure of rising consumer prices,” said Bernard Yaros, an economist at Moody’s.
Consumer prices rose 7.7% in October from a year ago, according to the US Bureau of Labor Statistics. That rate is down from the 9.1% in June, which marked the recent peak, and data suggests inflation may cool further in the coming months. However, the October rate is still near its highest levels since the early 1980s.
Many workers’ wages have not kept pace with inflation, meaning they have lost purchasing power. Hourly wages fell an average of 2.8% in the year to October, accounting for inflation, according to the BLS.
However, the inflationary effect on household wallets 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 more signs that peak inflation is likely behind us, and this should provide some relief to the demographics that have been disproportionately affected by the uncomfortably high inflation over the past year, such as younger and rural Americans, as well as those without a bachelor’s degree. Yaros said.
Moody’s estimate of inflation’s impact on the dollar analyzes October’s annual inflation rate and typical household spending, as outlined by the Consumer Expenditure Survey.
All those little decisions add up
Households can take certain steps to mitigate the impact — and most are unlikely to feel well, according to financial advisers.
“There is not one silver bullet,” Joseph Bert, a certified financial planner who serves as chairman and CEO of Certified Financial Group, told CNBC. Based in Altamonte Springs, Florida, the company was ranked #95 on the 2022 CNBC Financial Advisor 100 list.
“It’s all those little decisions that add up at the end of the month,” said Bert.
First, it’s critical to separate fixed and discretionary expenses, said Madeline Maloon, a financial advisor at San Ramon, California Financial Advisors, who was ranked No. 27 on CNBC’s FA 100 list.
Fixed costs are expenses for, for example, a mortgage, rent, food, transport costs and insurance. Discretionary costs include spending on things like dining out or vacations – things that people like but don’t necessarily need.
There’s often less flexibility to cut fixed expenses, which means nonessentials are the budget area where households are likely to need to cut 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 can also consider substitutions: traveling somewhere closer to home instead of a more expensive holiday destination further away, or staying in cheaper accommodation, for example. Or maybe get a haircut every eight to 10 weeks instead of every six.
They can also reassess monthly subscriptions — to clothing and streaming services, for example — which can often serve as a “money drain,” Maloon said. Some may get little use but continue to suck money out of your account every month.
“If you keep living the same lifestyle, you pay more for it,” Bert said.
Every purchasing decision generally has an alternative, and people trying to save money should look for a cheaper option whenever possible, Bert said.
There are some ways households can also save money on their regular expenses. For example, compared to grocery shopping, consumers can stock up on staples, shop with a food list, compare stores to find the best deals, and switch what they eat.
For example, consumers who commute to work and spend a lot on gas can reduce their public transportation budget by using a fare tracking service, paying cash, being more strategic about driving schedules, and signing up for loyalty programs.
It’s important, Bert said, that people avoid financing higher costs with a credit card or through a withdrawal or loan from a retirement plan.
“That’s the worst thing you can do,” he added. “You will pay a huge price for that in the coming years.”