Inflation came in this month at 7.5%. It was 7% the month before. I thought that inflation would head down, but that was not the case! The Fed has yet to use all of the tools at their disposal to slow inflation, so I’m not panicking. In fact, I am quite certain they will very soon.
Right now, I want to focus on how inflation is actually affecting real consumers like you and I. At the end of the article, I will provide links to a couple of blogs you need to read in order to understand inflation, along with its sometimes positive and yet sometimes negative impact on our economy.
The chart below shows how inflation levels by category, and I’m going to walk through a few of them.
Oil & Gas:
I almost want to throw oil and gas out, because they can totally zig when inflation zags. Oil prices are heavily influenced by international relationships and production. That said, oil and therefore gas prices are up 40+%. That might be horrible for some… but wonderful if you are an investor!
The J.P. Morgan Asset Management chart below show that the S&P 500 energy sector is up 27% so far this year! The next closest asset class is Financials at 2.7%…. everything else is negative. So, while this situation might be hurting your wallet at the gas pump, it might be helping your portfolio.
Meats, Poultry, and Eggs:
This one hurts. I’m not seeing a lot of upside here either. 12% is a very high increase in price over a year period. Yes, food prices can be “cyclical”, but this certainly seems like something more. I think inflation will certainly slow down in the grocery area, but in the meantime, clip your coupons, eat a lot of pasta, and be thankful that inflation has been so low over the previous decade to make up for this year.
It is interesting to me that inflation in this category is so “low” (comparatively) at 5.3%. Perhaps it is because people realized they just wanted to wear sweatpants during the pandemic, so they aren’t out trying to buy new clothes. Who knows – but interesting nonetheless.
I was pleasantly surprised to see that shelter was only up 4.4%. For many families, their housing is their largest expense, so even a small increase in this area can feel devastating. For reference, with shelter up 4.4% that would make a $1,000/mo apartment cost $1,044/mo. That may not seem like a lot to some people, but for those who are living paycheck to paycheck while having to pay 40% more for gas, 12% more for many of their groceries, and 11% more for their electricity, it can add up very quickly.
I am writing about the realities of inflation in your budget, because I want you to be aware. I also want you to be prepared. Navigating inflation takes flexibility. If you had a stringent budget carved into stone that allots every dollar to an expense, you might find it difficult to navigate rising costs. However, if you are prepared with flexibility in your budget that directs extra cash to emergency savings, you will be just fine when weathering environments like this.
If you don’t have an emergency savings account, here is why I think you should open a completely separate account from your normal banking account: 4 Reasons You Need a Separate Savings Account
If you have never budgeting before, but want to try it so you can be better prepared to face financial uncertainty, here is an article for you: First-Timer’s Guide to Budgeting
Here are former posts on inflation that give deeper context:
So, my point really is that no…. You aren’t crazy. Your grocery trips really are getting more expensive. It’s also to remind you that this is why we prepare.