How to reduce the impact of rising consumer prices due to inflation

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Inflation is forcing US households to spend $445 more per month on the same items than they did a year ago, according to an estimate from Moody’s Analytics.

Consumer prices jumped 8.2% in September from the same month in 2021, the US Bureau of Labor Statistics said Thursday. That rate is down from 9.1% in June, which marked the recent high, but 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 3% on average in the year to September after adjusting 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 like geography.

Either way, it’s been a “tough time” for all households, said Ryan Sweet, chief U.S. economist at Moody’s.

“Inflation affects people very, very differently,” Sweet said. “But everyone is feeling the effect.”

Moody’s estimate of the impact of inflation in dollars analyzes the September annual inflation rate and typical household spending as depicted by the Consumer Expenditure Survey.

There is “no magic bullet” to save money

Households can take some steps to lessen the impact – and most are unlikely to feel well, financial advisers say.

“There’s no silver bullet,” said Joseph Bert, a certified financial planner who is president and CEO of Certified Financial Group. 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 essential expenses like 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.

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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 switch foods, 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.

Above all, Americans should avoid financing higher costs with a credit card or through a withdrawal or loan from a retirement plan, Bert said.

“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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