If inflation crushes your budget? Here are 3 ways to fight back

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Inflation is rapidly raising the prices of households in core areas of their monthly budgets – energy, food and housing. This makes it difficult for consumers to avoid an economic hit, even though wages are also rising with their fastest cut for years.

But there are levers Americans can pull – relative to their jobs, investments and expenses – that can help, according to financial advisers.

“I’m comparing the situation to being out at sea in a tiny little boat in the middle of a terrible storm,” said Andy Baxley, a Chicago-based certified financial planner at The Planning Center. “You just have to control what you can control.

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“You can not control the storm or the sea, but you can control what you do on your little boat.”

The consumer price index rose 8.5% in March 2022 from a year earlier, the fastest 12-month rise since December 1981, the U.S. Department of Labor said Tuesday.

The index is a measure of rising prices across a range of U.S. goods and services. A basket of goods that cost $ 100 a year ago would cost, on average, $ 108.50 today.

Gasoline, shelter and food were the biggest contributors to rising costs last month, the labor ministry said.

These categories have a major impact on the typical American: Housing, transportation, and food accounted for nearly two-thirds of the average household budget by 2020.

“Households have to make it very difficult [financial] decisions day in and day out, “said Greg McBride, financial analyst at Bankrate, about inflation.

Food, energy and housing

Specifically, the prices of “food at home” (ie grocery bills) have risen by 10% over the last 12 months, the largest annual increase since March 1981. Costs have risen across all major food categories, the Ministry of Labor said.

Housing costs such as rent, meanwhile, have risen by 5% in the past year, the fastest annual rate since May 1991.

And household energy costs such as electricity and natural gas rose 11.1% and 21.6% respectively in the past year. Meanwhile, prices at the pump have risen 48%.

Power has shifted to employees in a big way. Take advantage of this rare moment to make sure you get what you’re worth.

Andy Baxley

certified financial planner at The Planning Center

Russia’s invasion of Ukraine was a major contributor to inflation in March, especially for gasoline prices. (Bzin accounted for more than half of total inflation last month, although prices have fallen recently as oil prices have fallen.)

Russia and Ukraine are also major agricultural exporters, and their conflict is likely to play at least a small role in higher food prices, McBride said.

But inflation had been high even before the war in Europe, a function of demand that exceeded supply since the US economy rose in early 2021.

In the beginning, consumers had plenty of money to spend and global supply chains could not keep up.

That dynamic is still present as Covid cases abroad, for example, cause lockdowns and halt production. The supply of labor has not fully recovered either, and firms have raised wages to compete for the workers; they can pass on these labor costs to consumers via e.g. higher prices.

Some economists are optimistic that inflation peaked last month. The so-called “core” inflation figures (which remove the volatile food and energy categories) fell for the second month in a row, perhaps an early sign of a broader deceleration.

“There seems to be clear signs of a downturn there,” said Andrew Hunter, senior U.S. economist at Capital Economics. “But it is likely to remain high by previous standards in the next year to 18 months because the economy is so strong.”

There are a few steps that households can take to dull the economic impact of inflation.

1. Ask for a pay rise – or change jobs

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First, high prices may obscure some good news for workers: The labor market is hot. Job openings are close to record highs, layoffs are close to historic lows, and employers are raising wages rapidly.

Instead of focusing on how much more money is being spent due to inflation, workers can use their newfound leverage to make more money, Baxley said.

Workers should ask for a pay rise or hunt for a higher-paying job if their employer is not willing to pay the pay rise, Baxley said. This is also a good time to negotiate work-related costs – for example, asking to work from home more often can reduce transport time and thus fuel costs.

Taking thousands of extra dollars home in a paycheck is likely to have a much greater impact on a consumer’s bottom line than other still useful actions such as buying generic brands instead of “premium” counterparties.

“Power has shifted to employees in a big way,” Baxley said. Take advantage of this rare moment to make sure you get what you’re worth.

2. Save on a high-yield ‘I-bond’

Second, consumers who save for a purchase within the next two to three years (perhaps a car or a down payment on a home) can buy “I-bonds.”

These virtually risk-free investments pay a rate that rises and falls according to the consumer price index and therefore protects the purchasing power of consumer savings, Baxley said. Investors can save up to $ 10,000 a year.

This should be a bucket separate from emergency savings, as I-bonds unlock your money for at least a year, Baxley added.

3. Measure your personal inflation rate

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