Inflation-Fighting Ideas: Round Two

 

Almost a year ago, in August 2021, I wrote a blog post for the OneOp Personal Finance team about inflation-fighting ideas for military families. At that time, many experts predicted that inflation would be “transitory” and subside quickly as supply chain “issues” related to the pandemic got resolved. The post included inflation-fighting ideas such as lower-cost product substitutions, time-shifting, and changing habits such as consolidating errands and turning down the thermostat.

 

In March 2022, after the then- highest inflation rate in 40 years, I wrote a Money Talk blog post about inflation and suggested additional inflation-fighting hacks including postponing purchases (e.g., a car) unless absolutely necessary, reviewing the rate of return on an investment portfolio (to see if it was staying ahead of taxes and inflation), buying “gently used” versus new items, and reviewing budgets to “claw back” the amount of money that inflation has “stolen.”

Sadly, historically high inflation is still with us. The latest annual CPI rate is 9.1% for the year ending in June 2022. Many supply issues remain unresolved and the impact of the war in Ukraine has had significant global economic impacts. Therefore, I am revisiting the topic of inflation once again to share additional information about inflation impacts and inflation-fighting ideas. Below are some thoughts to consider:

 

Inflation Time Comparisons

 

¨    Historical Perspective- To better understand the impact of inflation on prices in the past, check out the CPI Inflation Calculator from the U.S. Bureau of Labor Statistics. The calculator uses historical inflation rates as measured by a Consumer Price Index called the CPI-U. Users enter two dates to compare the relative buying power in each time period, For example, $7,978 in February 2022 has the same buying power as $5,000 twenty years earlier in February 2002. This is an almost $3,000 (and almost 60%) increase in prices and decrease in purchasing power.

 

¨    Future Perspective- The Inflation Calculator from Smart Asset also uses historical inflation rates (i.e., the CPI-U) and assumes an average inflation rate in its analysis. With this calculator, users can make projections to estimate the buying power of a dollar at a future date. For example, $100 in 2022 is projected to be worth $164 in 2042 using an average inflation rate of 2.5% and cumulative inflation of 63.86%. Calculator users can change the inflation rate in the calculator, however. If a 4% inflation rate is assumed from 2022 to 2042, $100 this year will be worth $219 in 2042.

 

Five Inflation-Fighting Hacks

 

¨    Increase Income- Most inflation-fighting ideas suggest ways to reduce expenses. That’s all well and good, but cash flow can also be improved with increased income. Like investment returns, if household income increases at a higher percentage than the official inflation rate (CPI-U), purchasing power increases. Conversely, if the inflation rate exceeds an increase in income, purchasing power decreases and people can afford fewer goods and services. Specific ways to increase income include a new job, a promotion, overtime, a second job, and a “side hustle” (freelancing).

 

¨    Brace Your Budget- Higher-than average inflation appears to be with us for a while due to increased costs for materials and labor. Therefore, it is smart to assume a reasonable inflation rate when preparing a household budget and build price increases into anticipated expenses. Examples include regularly budgeted amounts for heating and cooling (i.e., utilities such as electricity, oil, and natural gas), food, rent, gasoline, and auto insurance.

 

¨    Automated Payments Review- Payments for gym memberships, streaming services, cell phone service, and discretionary expenses that many people pay through automatic payments have been rising. Review each one and consider dropping payments for products or services that are not used regularly. Plan B is to check if there are cheaper plans or substitute products or services or special “deals” offered to stay with a particular company and not leave.

 

¨    Do Things Yourself- The more tasks you can do yourself, the less you’ll have to spend on inflated prices to pay others. This, of course, assumes you have the time and skills to do so. Examples noted in recent media reports include having a low-cost catered buffet event (e.g., wedding) versus a high-cost sit-down meal (lots of postponed weddings in 2022 are pushing up prices!), eating at home more often, and weatherizing your home to reduce energy costs.

¨    Negotiate Better Prices- Reach out to every company you pay regularly where there might be some “wiggle room” (e.g., cell phone provider, insurance company, credit card issuer). Ask if there are any discounts or “value plans” that you qualify for. Many consumers who ask for price concessions are successful. Bottom Line: It never hurts to ask!

    Additional inflation-fighting ideas can be found in my recent webinar: https://www.youtube.com/watch?v=f7s__kAaBz8

 This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.