Inflation is a giant killer for your savings and can add a lot of expenses to your necessary purchases. Everyday items such as gasoline have seen a significant price surge recently.
Trying to save money may seem impossible to many of us when it comes to saving money. However, we need to cut back on what we are spending daily, but we also need to consider inflation and how that affects our accounts.
For example, if you keep your money in a bank that offers little to no interest, you will lose money year on year as inflation rises, and your money is worthless when you come to spend it.
This is due to inflation, which can seriously increase the cost of certain everyday items. Although we cannot avoid using or buying some of these items, we can be more conscious of what is costing us extra to find ways to cut back on them and save ourselves a little money.
Although some of the areas may be more obvious, there are some that you may not even think about, and without the knowledge of where inflation is hitting you the hardest, you may find it harder and harder to save money.
Inflation in the US
Currently, inflation in the US has seen its steepest increase in over 30 years, meaning that it is becoming increasingly more expensive to live.
This rapid yearly increase means that many people have not had the time to deal with the rising cost of living and account for this in their savings and accounts. So, to find out how inflation is affecting you, keep reading.
What is the inflation rate in the US?
Here are the following percentages for the US over the past year:
If you are wondering what these figures look like in terms of normal life, consider the following percentage increases:
Each of these percentage increases adds up over your daily life, raising the cost of living substantially.
However, these price increases have not gone unnoticed by the public, as a recent search engine study shows that the search for the term "inflation" has also significantly risen in recent months.
So, where is inflation hitting you the hardest?
The Federal Reserve states an average of around 2% inflation per year. This has been roughly the average inflation rate in recent years, until this past year when prices increased dramatically.
Let us look at the categories of consumer spending to see where the true change lies:
By looking at this list, you can see that the fuel and transport sectors have been the most significantly affected by the rise in inflation.
Now, let us take a closer look at how inflation has affected consumer spending.
The amount of money spent on gasoline has significantly increased in the past year, with prices now over one dollar per gallon higher than the previous year. This has led to a significant increase in the money customers have to shell out to run their car or truck.
These higher prices directly result from the increased demand among consumers coupled with the restrained supply. So, a limited supply and high demand mean companies can increase their prices, and people will still pay the price.
Companies in the United States take care not to oversupply the market with their products to keep prices high and profit margins high.
Because of the impact on the average citizen, President Joe Biden has pledged to make inflation his top priority, even though he lacks access to the necessary tools. So, for the moment, he has encouraged the Federal Trade Commission to investigate how energy companies are affecting the rise in prices.
Natural gas has been affected much in the same way gasoline has been. After the pandemic, the industry is slowly getting back on its feet, but the decrease in production through most of the pandemic means that there is still a limited supply, allowing for an increase in prices.
Additionally, the supply chain of natural gas companies was significantly affected by Hurricane Ida.
So, what does this mean for the average person? This means that your winter heating bills could cost you an extra 54%. Many US homes are heated using fossil fuels, so most will be directly affected.
Used Cars and Trucks
The used vehicle market has also seen a price increase, but this is due to a knock-on effect from the new vehicle market rather than being a direct result of inflation and the pandemic.
Most modern vehicles rely on chips as a significant component in their build. However, due to the pandemic, there has been a significant reduction in the production of chips, leading to a global shortage. This means that new vehicle production is down, which means that demand for new vehicles is down.
The inability to buy a brand-new vehicle, or simply the rising cost, has led many people to turn to the second-hand market for their cars or trucks. This increase in demand has led to a rise in price.
The second-hand vehicle market has seen a 26% increase in the past year alone.
Along with the transport and energy sectors, meat products also saw a significant increase in price last year. A 15% increase, to be precise.
One reason for this is the rising price of transportation and energy. The increasing cost of producing meat products means that the increase is passed on to the consumer.
The introduction of measures to combat the pandemic also led to decreased labor, meaning that production dwindled. But, again, a smaller supply means a higher cost.
The price increase in the furniture industry is due to several factors, the main one being the rise in the price of wood.
The increasing cost of raw materials, such as wood, means that it costs manufacturers more to produce the products, and like with the rise in the price of meat, this hike is then passed on to customers.
The pandemic has cut production and caused problems with the supply chain in many different industries, and furniture production isn't the only one.
So, where should you cut back?
These rising costs are predominantly in challenging areas to cut back on, meaning consumers will need to pay these higher prices. However, studies have shown that people plan to cut down in other areas of their lives to recoup their money to combat these higher prices.
The following sectors are where most consumers are planning to cut costs:
In 2022, is inflation going to keep rising?
The rising cost of living is a concern for many, and naturally, many people will be wondering if this trend will continue.
Although there is no official opinion, many economists believe that the inflation rate will begin to decrease in 2022 as we hopefully conclude the pandemic.
In the long run, it does look as if the world will continue to slowly return to normal as transport and supply chains begin to resume their regular schedules. This increased supply will hopefully decrease the rate of inflation.
However, in the short term, we will need to adjust to the higher prices as the events of the world can be expected, and inflation can continue to rise in the face of new, unexpected events.
It is worth bearing in mind that the inflation rate will differ from state to state so that the country will be affected differently depending on location. For example, San Francisco saw the most significant influx of citizens but experienced one of the lowest inflation rates at 4%.
Despite this statistic, an increase in the population typically leads to a rise in the price of goods such as houses and other items. So, less dense areas may be less affected by the rise in prices.