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If inflation is crunching your budget? Here are 3 ways to fight back

If inflation is crunching your budget? Here are 3 ways to fight back

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Inflation is rapidly raising household prices in the core areas of their monthly budgets – energy, food, and housing. This makes it difficult for consumers to avoid the financial hit, even as wages are also rising at their fastest rate in years.

But there are tools Americans can pull off — compared to their jobs, investments and spending — that may help, according to financial advisors.

“It’s like going out at sea in a tiny little boat in the middle of a terrible storm,” said Andy Baxley, a certified financial planner at the Chicago-based Planning Center. “You only have to control what you can control.

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“You can’t control the storm or the ocean, but you can control what you do on your little boat.”

The US Labor Department said Tuesday that the consumer price index jumped 8.5% in March 2022 from the previous year, the fastest increase in 12 months since December 1981.

The index is a measure of price increases across a range of US goods and services. A basket of items that cost $100 a year ago will cost an average of $108.50 today.

The Labor Department said gasoline, shelter and food were the biggest contributors to rising costs last month.

These categories have a huge impact on the typical American: housing, transportation, and food account for nearly two-thirds of the average household budget in 2020.

“Families have to make it very difficult [financial] “Decisions are made day in and day out,” said Greg McBride, chief financial analyst at Bankrate, of inflation.

Food, Energy and Housing

Specifically, prices for “food at home” (ie grocery bills) have risen 10% over the past 12 months, the largest annual increase since March 1981. Costs have risen across all major food categories, according to the Labor Department.

Meanwhile, shelter costs such as rent rose 5% last year, the fastest annual pace since May 1991.

Household energy costs such as electricity and natural gas rose 11.1% and 21.6%, respectively, last year. Meanwhile, prices at pumps rose by 48%.

Power passed to the employees in a major way. Take advantage of this rare moment to make sure you get what you deserve.

Andy Baxley

Certified Financial Planner at the Planning Center

The Russian invasion of Ukraine was a significant contributor to inflation in March, especially in gasoline prices. (Gasoline accounted for more than half of overall inflation last month, although prices have fallen recently with lower oil prices.)

Russia and Ukraine are major agricultural exporters, and their conflict will likely play at least a small role in driving up food prices, McBride said.

But inflation was high even before the war in Europe, as a result of more demand than supply since the US economy rebounded in early 2021.

At first, consumers had a lot of money to spend and global supply chains couldn’t keep up.

This dynamic is still there, with Covid cases abroad causing shutdowns and halts in production, for example. Also, the supply of labor had not yet fully recovered, and firms raised wages to compete for workers; They may pass on labor costs to consumers through higher prices, for example.

Some economists are optimistic that inflation peaked last month. So-called “core” inflation numbers (which strip out volatile food and energy categories) fell for the second month in a row, perhaps an early sign of a broader slowdown.

“There seem to be clear signs of a slowdown there,” said Andrew Hunter, chief US economist at Capital Economics. “But it will probably remain high by previous standards for the next year to 18 months because the economy is very strong.”

There are some steps families can take to mitigate the fiscal impact of inflation.

1. Ask for a raise – or a job switch

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First, higher prices may mask some good news for workers: the job market is hot. Jobs are nearing record highs, layoffs are near historic lows, and employers are raising wages rapidly.

Instead of focusing on how much money is being spent due to inflation, workers can use the new leverage to make more money, Baxley said.

Baxley said workers should ask for a salary increase or seek a higher paying job if the employer is unwilling to pay the increase. This is also a good time to negotiate work-related costs – for example, ordering work from home more often can reduce transportation time, and therefore gasoline expenses.

Taking home thousands of extra dollars in salary is likely to have a much greater impact on the bottom line for the consumer than other still beneficial measures such as buying generic brands rather than “premium” counterparts.

“Power has shifted to employees in a major way,” said Baxley. “Take advantage of this rare moment to make sure you get what you deserve.”

2. Provide “I bond” with high interest rate

Second, consumers who are saving up to buy in the next two to three years (perhaps a car or a down payment on a home) can buy “I bonds.”

These nearly risk-free investments drive a rate that goes up and down according to the CPI, Baxley said, thus protecting the purchasing power of consumers’ savings. Investors can save up to $10,000 per year.

This should be a separate bucket from emergency savings, Baxley added, because bonds lock in your money for at least a year.

3. Measure your personal inflation rate

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