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Rising inflation is causing Americans to rethink how they spend their money.
The Consumer Price Index, which measures a broad basket of goods and services, rose 7.9% in February from 12 months earlier. Prices are rising for everything from the food you put on the table to the gas that powers your car.
That weighs heavily on people’s minds, as according to a CNBC + Acorns Invest in You poll conducted by Momentive, 48% think about rising prices all the time. The online survey was conducted March 23-24 among a national sample of 3,953 adults.
Three-quarters are concerned that higher prices will force them to reconsider their financial decisions in the coming months, the survey found.
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According to an analysis by Moody’s Analytics, inflation is costing the average US household an additional $296 per month. Experts expect it to get worse before it gets better.
Still, there was no major impact on consumer spending, although retail sales grew at a slower-than-expected pace in February.
The biggest area where people have saved is on eating out in restaurants, with 53% according to the survey having done so. They also drive less and cancel monthly subscriptions, among other things.
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If higher prices continue, dining, driving, and travel or vacations are the top three areas where Americans want to save even more.
The past year has certainly been difficult for many. A whopping 52% said they were under more financial stress than they were a year ago. They are most concerned about gas prices, housing costs and food costs. Last year, gas prices rose 38%, housing rose 4.7%, and food prices rose 7.9%.
Meanwhile, a majority of Americans are unhappy with the White House’s response, with 61% disapproving of the way President Joe Biden is handling inflation.
recession fears
The current environment has a majority of Americans concerned about an economic recession, with 81% of respondents believing one is likely to occur this year.
“People are definitely nervous,” said Mark Zandi, chief economist at Moody’s Analytics. “Recession risks are high.”
He puts the chances at 1 in 3, and the trend is rising.
When will inflation slow down?
Inflation was caused by the pandemic, which disrupted supply chains and labor markets, and was exacerbated by the Russian invasion of Ukraine, which affected gas and food prices, Zandi explained.
“If this diagnosis is correct, inflation should moderate as the pandemic and the other side of the fallout from the Russian invasion subside,” he said.
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However, consumers will face even more pain in the near term as inflation persists, Zandi said.
“We have a bad couple of months ahead of us,” he said.
He predicts that inflation will peak around May and be much lower by this time next year, depending on how global events unfold and the Federal Reserve’s response. The central bank raised interest rates last month to fight inflation and plans another six hikes this year.
If the Fed doesn’t calibrate things just right, the economy could slip into recession, Zandi warned.
Navigate through higher prices
Grace Cary | moment | Getty Images
First, you should get your financial situation under control.
Asking yourself a few key questions can help you identify where you might be able to cut spending, said certified financial planner Ashton Lawrence, a partner at Goldfinch Wealth Management in Greenville, South Carolina.
“What’s the cash flow like? What kind of debt, how much debt do we have?” he said.
“It’s about making the small changes and controlling where you can control.”
More from Invest in You:
Most Americans are concerned about a recession hitting this year
Here’s what consumers want to cut if prices keep rising
This allows pensioners to control higher prices
Once you see where you’re spending money, break it down into needs and wants and start reducing things that are optional, said CFP Carolyn McClanahan, founder and director of financial planning at Life Planning Partners in Jacksonville, Fla.
In fact, not only does eating out all the time cost more than cooking at home, it’s also not as healthy, said McClanahan, who is also a doctor. Use coupons and price comparison at the grocery store to save money.
There will be nights when time is short and you’ll be tempted to order dinner to go. McClanahan cooks in bulk on Sundays and puts meals in the freezer for those nights.
Carpooling or scheduling car trips to minimize driving can help with fueling, as can working from home a few days a week if possible.
While it’s natural to worry about rising prices, you can’t control them — and worrying about it isn’t good for your health, McClanahan said.
“Just think about the things you can control,” she said.
“Making sure you’re spending your money wisely is the only thing you can do to mitigate the outside world around you.”
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