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 per month on the same goods and services than a year ago, according to Moody’s Analytics analysis of October inflation data.
While September’s monthly figure of $445 is down slightly, stubbornly high inflation is weighing on the typical budget.
“Despite weaker-than-expected inflation in October, households are still feeling the pressure of rising consumer prices,” said Bernard Yaros, economist at Moody’s.
Consumer prices rose 7.7% year over year in October, according to the US Bureau of Labor Statistics. That rate is down from 9.1% in June, which marked its most recent high, and the data suggests inflation could moderate further in the coming months. However, the October rate is still near its highest level since the early 1980s.
Many workers’ wages have not kept pace with inflation, meaning they have lost purchasing power. Adjusted for inflation, hourly wages fell an average of 2.8% through October, according to the BLS.
However, the impact of inflation on household wallets is not uniform. Your personal inflation rate depends on the types of goods and services you buy and other factors such as geographic location.
“We’re seeing more evidence that peak inflation is probably behind us, and this should bring some relief to demographics who have been disproportionately hurt by uncomfortably high inflation over the past year, such as younger and rural Americans, as well as those who have not.” get a bachelor’s degree,” Yaros said.
Moody’s Estimate of the Impact of Inflation on the Dollar analyzes the October annual inflation rate and typical household spending as described in the Consumer Expenditure Survey.
“All those little decisions” add up
Households can take specific steps to mitigate the impact – and most likely won’t feel good, according to financial advisors.
“There’s no silver bullet,” Joseph Bert, a certified financial planner who serves as chairman and CEO of the Certified Financial Group, told CNBC. Based in Altamonte Springs, Fla., the company was ranked #95 on the 2022 CNBC Financial Advisor 100 list.
“It’s all these little decisions that add up at the end of the month,” Bert said.
First, it’s important to separate fixed expenses from discretionary expenses, said Madeline Maloon, a financial advisor at California Financial Advisors in San Ramon, Calif., who is ranked 27th on CNBC’s FA 100 list.
Fixed costs are expenses for necessities such as mortgage, rent, groceries, travel expenses and insurance. Examples of discretionary costs include dining out or vacations—things that people enjoy but don’t necessarily need.
There’s often less flexibility to cut fixed costs, meaning households are likely to have to make cuts on nonessential expenses if they want to save money, Maloon said.
Households may need to ask questions, Maloon added, such as: Is this 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: for example, traveling to a closer location rather than a more expensive, more distant vacation destination, or staying in cheaper accommodation. Or maybe get a haircut every eight to 10 weeks instead of every six.
They can also revalue monthly subscriptions — for clothes and streaming services, for example — which can often serve as “money drains,” Maloon said. Some may be underused but continue to pull money from your account each month.
“If you continue to live the same lifestyle, you pay more for it,” Bert said.
Every purchase decision generally has an alternative, and those looking to save money should look for a cheaper option whenever possible, Bert said.
There are a few ways households can save money on their fixed expenses as well. Compared to grocery shopping, consumers can stock up on basic groceries, shop with a grocery list, compare stores to find the best deals, and change what they eat, for example.
Consumers who commute to work and spend heavily on gas, for example, may be able to cut their public transportation budgets by using a fare tracking service, paying cash, strategizing schedules, and signing up for loyalty programs.
It’s important, Bert said, that people avoid paying for higher expenses with a credit card or through a payout or loan from a retirement plan.
“It’s the worst thing you can do,” he added. “You will pay a high price for this in the years to come.”