People shop at a grocery store on June 10, 2022 in New York City.
Spencer Platt | Getty Images
The average American household is spending $433 more a month to buy the same goods and services it did a year ago, according to an analysis of October inflation data from Moody’s Analytics.
While slightly below the $445 monthly figure in September, extremely high inflation is dragging down the typical budget.
“Despite weaker-than-expected inflation in October, households are still feeling the pressure from rising consumer prices,” said Bernard Yaros, an economist at Moody’s.
According to the US Bureau of Labor Statistics, consumer prices rose 7.7% in October from a year earlier. The rate is down from 9.1% in June, which marked a recent peak, and the data suggest inflation may ease further in the coming months. However, the October rate is still near the highest level since the late 1980s.
Many workers’ wages have not kept pace with inflation, meaning they have lost purchasing power. Hourly earnings fell 2.8%, on average, from the year to October, after accounting for inflation. according to BLS.
However, the impact of inflation on the household wallet is not uniform. Your personal inflation rate depends on the types of goods and services you buy and other factors such as geography.
“We’re seeing more signs that peak inflation is likely behind us, and that should provide some relief for demographics who suffered from uncomfortably high inflation over the past year, such as young and rural Americans, as well as As well as without a bachelor’s degree,” Yaros said.
Moody’s estimate of the dollar impact of inflation analyzes October’s annual inflation rate and typical household outlays as outlined by. consumer spending survey,
‘All those little decisions’ add up
According to financial advisors, there are steps families can take to blunt the impact — and most aren’t likely to feel well.
“There is no one silver bullet,” says Joseph Burt, a certified financial planner who serves as chairman and CEO. Certified Financial Group told CNBC. The firm, based in Altamonte Springs, Florida, ranked 95th on the 2022 CNBC Financial Advisors 100 list.
“It’s all those little decisions that add up at the end of the month,” Burt said.
First, it’s important to separate fixed from discretionary expenses, said Madeline Maloon, a financial advisor at San Ramon, California-based California Financial Advisors, which ranked No. 27 on CNBC’s FA 100 list.
For example, fixed expenses are outlays for essential items such as mortgage, rent, food, transit costs and insurance. Discretionary costs include spending on, say, eating out or vacations – things that people enjoy but don’t necessarily need.
Maloon said there is often less flexibility to cut back on fixed expenses, meaning there are non-essential budget areas where households are most likely to cut back if they want to save money.
Families may need to ask questions, Maloon said, such as: Is that new car necessary? Can I buy a used car or a cheaper model instead? Is a home remodel necessary or something that can be put aside and reevaluated at a later time?
Americans may also consider substitution: traveling somewhere closer to home rather than a more distant holiday destination, or staying in cheaper accommodation, for example. Or, maybe get a haircut every eight to 10 weeks instead of every six.
They may also renegotiate monthly subscriptions — for clothing and streaming services, for example — which can often serve as a “money drain,” Maloon said. Some may be of little use but they keep sucking money out of your account every month.
Burt said, “If you’re living the same lifestyle, you’re overpaying for it.”
Burtt said there is usually a choice in every buying decision, and people trying to save money can look for a cheaper option.
There are also some ways that families can save money even on their fixed bucket of expenses. Relative to grocery shopping, consumers can stock up on staples, shop with food lists, compare stores to find the best deals, and change what they’re eating, for example.
Consumers who commute to work and spend a lot on gasoline, for example, can save money on their transit by using a price-tracking service, paying in cash, being more strategic about driving schedules, and signing up for loyalty programs. Might be able to reduce the budget.
It’s important, Burt said, that people avoid financing high costs through credit cards or retirement plan withdrawals or loans.
“It’s the worst thing you can do,” he said. “You will pay a heavy price for this in the years to come.”