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 on the same goods and services as it did a year ago, according to a Moody’s Analytics analysis of October inflation data.
Though down slightly from September’s $445 monthly figure, stubbornly high inflation is stretching the typical budget.
“Despite weaker-than-expected inflation in October, households are still feeling the pinch from 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 9.1% in June, which marked its recent peak, and data suggest that inflation could cool further in the coming months. However, the October rate is still close to its highest level since the early 1980s.
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 to October after adjusting for inflation, according to the BLS.
However, the impact of inflation on household portfolios is uneven. Your personal inflation rate depends on the types of goods and services you purchase and other factors such as geography.
“We are seeing more signs that peak inflation is probably behind us, and this should provide some relief to those demographics that have been disproportionately hit by uncomfortably high inflation over the past year, such as young and rural Americans, as well as those without college degrees,” Yaros said.
Moody’s estimate of the dollar’s impact of inflation analyzes the October annual inflation rate and typical household spending as outlined by the Consumer Spending Survey.
“All those little decisions” add up
Families can take certain steps to cushion the impact, and according to financial advisers, most are unlikely to feel well.
“There is no such thing as a silver bullet,” Joseph Bert, a certified financial planner who serves as president and CEO of Certified Financial Group, told CNBC. The company, based in Altamonte Springs, Florida, ranked No. 95 on CNBC’s 100 Financial Advisors list of 2022.
“It’s all those little decisions that add up at the end of the month,” Bert said.
First, it’s critical to separate fixed from discretionary spending, said Madeline Maloon, a financial advisor at California Financial Advisors, based in San Ramon, Calif., which ranked No. 27 on CNBC’s FA 100 list.
Fixed expenses are outlays for essential items such as mortgage, rent, food, transit expenses and insurance, for example. Discretionary costs include spending on, for example, dining out or vacation expenses – things people value but don’t necessarily need.
There’s often less flexibility to cut fixed expenses, meaning nonessential expenses are the budget area where families likely need to make cuts if they want to save money, Maloon said.
Families may need to ask questions, Maloon added, such as: Is that new car needed? Can I buy a used car or a cheaper model instead? Is a home renovation essential or something that can be put on hold and re-evaluated at a different time?
Americans may also consider substitutions: travel somewhere closer to home instead of a more expensive vacation destination farther away, or stay in cheaper lodging, for example. Or maybe get a haircut every eight to 10 weeks instead of every six.
They can also revalue monthly subscriptions, such as to clothing and streaming services, which can often act as “money drains,” Maloon said. Some may be underutilized but still suck money out of your account every month.
“If you keep living the same lifestyle, you’re paying more for it,” Bert said.
Every buying decision generally has an alternative, and people looking to save money can look for a cheaper option whenever possible, Bert said.
There are a few ways families can also save money on their fixed bucket of expenses. When it comes to grocery shopping, consumers can stock up on basic necessities, shop with a food list, 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 gas, for example, may be able to reduce their transportation budget by using a price-monitoring service, paying with cash, being more strategic about driving times, 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.
“This is the worst thing you can do,” he added. “You will pay a huge price for it in the years to come.”