Inflation is quickly raising prices for households in core areas of their monthly budgets — energy, food and housing. That’s making it hard for consumers to avoid a financial hit, even as wages are also rising at their fastest clip in years.
But there are levers Americans can pull — relative to their jobs, investments and spending — that may help, according to financial advisors.
“I liken the situation to being out at sea in a tiny little boat in the midst of a horrible storm,” said Andy Baxley, a Chicago-based certified financial planner at The Planning Center. “You just have to control what you can control.
“You can’t control the storm or ocean, but you can control what you’re doing on your little boat.”
The Consumer Price Index jumped 8.5% in March 2022 from a year earlier, the fastest 12-month increase since December 1981, the U.S. Department of Labor said Tuesday.
The index is a gauge of rising prices across a swath of U.S. goods and services. A basket of items that cost $100 a year ago would cost $108.50 today, on average.
Gasoline, shelter and food were the biggest contributors to rising costs last month, the Labor Department said. Those categories have a big impact on the typical American: Housing, transportation and food accounted for almost two-thirds of the average household budget in 2020.
“Households are having to make very difficult [financial] decisions day in and day out,” Greg McBride, chief financial analyst at Bankrate, said of inflation.
Specifically, “food at home” prices (i.e., grocery bills) are up 10% over the last 12 months, the biggest annual increase since March 1981. Costs were up across all major food categories, the Labor Department said.
Shelter costs such as rent, meanwhile, rose 5% in the past year, the fastest annual pace since May 1991. And household energy costs such as electricity and natural gas rose 11.1% and 21.6%, respectively, in the last year. Meanwhile, prices at the pump are up 48%.
Russia’s invasion of Ukraine was a big contributor to inflation in March, especially for gasoline prices. (Gasoline accounted for more than half of overall inflation last month, though prices have fallen recently as oil prices have come down.) Russia and Ukraine are also big agricultural exporters, and their conflict likely plays 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 outstripping supply since the U.S. economy ramped up in early 2021.
Initially, consumers had lots of money to spend and global supply chains couldn’t keep up.
That dynamic is still present, as Covid cases abroad cause lockdowns and halt production, for example. Labor supply also hasn’t yet fully recovered, and businesses have raised wages to compete for workers; they may pass those labor costs on to consumers via higher prices, for example. Some economists are optimistic inflation peaked last month. So-called “core” inflation figures (which strip out the volatile food and energy categories) fell for the second consecutive month, perhaps an early sign of a broader deceleration.
“There seem to be clear signs of a slowdown there,” said Andrew Hunter, a senior U.S. economist at Capital Economics. “But it’s likely to remain high by past standards for the next year to 18 months because the economy is so strong.”
