It’s hard to turn on the news and not hear about how inflation has been affecting the country—and the globe—but many have been feeling it the most in their own pocketbook.
Despite year-over-year inflation being at 3.4% in December (as opposed to 6.5% in December 2022), recent polls show that 70% of Americans feel like the economy is getting worse—not better. And while inflation is actually slowing (which just means that prices are not increasing by as much), more than 84% of the survey respondents report that their cost of living is rising. The biggest hit: food prices, followed by housing costs, utility bills and transportation.
The fact is: while economic reports show a reduction in inflation, our individual rate of inflation can vary based on our own experiences and mix of purchases, frequency of consumption and the city we live in (among other things).
One way to calculate how your household’s individual inflation rate is affecting your bottom line is by determining your Personal Inflation Rate (PIR).
“Depending on your spending patterns, your personal inflation rate may be substantially different from the inflation rates you hear on the news,” said Kimberly Bridges, director of financial planning at BOK Financial®.
Here’s how you can calculate your PIR:
- Start with the same categories that the Bureau of Labor Statistics (BLS) uses: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.
- Pull out your credit and debit statements from one year ago and tally them up.
- Tally the same expenses over the last month, accounting for larger purchases like insurance (add them up and divide by 12 to get a monthly cost).
- Subtract your total monthly spending from a year ago from your current monthly spending. Then divide that sum by your monthly spending from a year ago to get your PIR. (Example: your spending last month was $8,250, and one year ago it was $8,900. The different is $650. Divide that number by $8,900 and your PIR is 7.3%.
“Understanding where your money is going by itemizing core expenses and percentages is the most important thing in determining PIR,” said Bridges.
Changing prices across the market
Meanwhile, broadly speaking, taking a closer look at inflation numbers, there’s some positive news on the horizon:
- Prices are starting to level out—and in some cases, drop—on some food-related items. A dozen eggs cost $4.83 a year ago, as opposed to $2.07 this past October. (However, they’re still about 50 cents more expensive than they were in 2019). The price of a pound of ground beef is only $1 more than in 2019.
- Gas prices were more than $5 a gallon in summer 2022, and dropped to a national average of $3.08, as of early January.
However, there’s still a long way to go before consumers start feeling the effects of dropping prices. In fact, it costs $120 to buy the same goods and services a family could afford with $100 pre-pandemic.
And Bloomberg reports that many costs overall are still elevated over January 2020 levels:
- Groceries and electricity are up 25%.
- Used car prices are up 35%.
- Auto insurance is up 33%.
- Rent is up 20%.
Tips for minimizing the feel of inflation on your wallet
While it might not be feasible to reduce expenses to previous levels, you can still take more control over your finances and reduce the feeling that inflation is out of control, Bridges said.
Here’s what you can do:
- Revisit your budget. Start with where you are now and be honest about your debt, expenses and spending habits.
- Look for lower-cost substitutes. This can range from small things like buying store-brand products instead of popular brands to holding a home movie night or having friends over for cocktails instead of going out for dinner.
- Trim the “nice-to-haves” for a while. Food is one area that most Americans are feeling higher-than-normal expenditures, so it might be time to whittle down the restaurant, takeout and delivery bills.
- Pay down debt. The average interest rate on credit cards today is 27.84%, as of early January, which means you could be paying an exorbitant amount of money if you aren’t paying balances off each month. If you are carrying high-interest credit card debt from month to month, paying it down should be your highest priority.
- Diversify your income. If you’ve reviewed your budget and still can’t make ends meet, consider a side hustle or part-time job, or negotiate a pay raise with your employer.
- Talk to a professional. Financial advisors can help set you on the right path toward ensuring your investments are sound and you’re doing what you need to do to stay financially healthy.
. © 2024 BOKF, NA.