60-minute webinar for AFCPE on 05/11/23 that discusses the causes and impacts of inflation and several dozen strategies to mitigate the effects of higer prices on household budgets.
15. Inflation Data: 2021-2023
5/21- 5.0% annual rate
1/22- 7.5% annual rate
3/22 and 7/22- 8.5% annual rate
6/22- 9.1% annual rate
12/22- 6.5% annual rate
2/23- 6.0% annual rate
3/23- 5.0% annual rate
4/23- 4.9% annual rate (10th
straight month of CPI declines;
shelter, used cars and trucks,
and gas prices up)
16. CPI Rate is Annualized
• Guards against “blips” in inflation data (up or down)
• No need for seasonal adjustments (compares the
SAME month a year apart)
• Disadvantage: emphasizes recent history rather than
current events when there are abrupt changes
– By averaging a higher past CPI with a lower recent CPI
(now) OR
– By averaging a lower past CPI with a higher recent CPI
(2021)
19. “Shrinkflation”
• Used by manufacturers to “disguise” higher prices
• Same package size and price but less weight/size/contents
• Often goes unnoticed by consumers
20. Shrinkflation: What to Do?
• Pay attention and compare package sizes and unit prices
• Wait for sales and stock up
• Buy fewer pre-packaged foods
• Buy store brands (often last to adjust unit prices)
23. Inflation Effects By Income
Source: The Wall Street Journal:
https://www.wsj.com/articles/inflation-takes-
biggest-bite-from-middle-income-
households-11672246653
24. Federal Reserve Dilemma
Source: Next Gen Personal Finance
• Ten consecutive Federal
Reserve interest rate
hikes from March 2022
through May 2023
• Meant to discourage
inflation by increasing the
cost of borrowing, without
slowing the economy and
triggering a recession (i.e.,
a “soft landing”
• Federal funds rate went
from nearly 0% to 5% to
5.25%
26. 1. Groceries
• Make substitutions (store brands, applesauce for eggs)
• Eat more meatless meals
• Stock up on sale items
• Consider a warehouse store
• Eliminate high-cost “junk” foods/eat less food
• Use coupons/double coupons
28. 2. Eating Out
• Rethink restaurant drinks- drink water
• Share an entrée or dessert
• Eat an appetizer as a meal
• Select BYOB restaurants for meals with adult
beverages
• Eat out for lunch or “linner” or “early bird specials”
• Bring takeout containers for another meal
29. 3. Gas
• Drive less/consolidate trips
• Find cheap gas (GasBuddy, Waze)
• Pay with cash
• Join a fuel rewards program (e.g., RaceTrac Rewards)
• Time your fill-ups (Sun/Mon-best; Thurs-worst)
• Check tire pressure and lighten loads
30. 4. Road Trips/Vacations
• Pack snacks and beverages/food in a cooler
• Try to eat out only once a day
• Stay at hotels with free breakfast
• Get hotel coupons at rest stops
• Travel with a group and share expenses
• Travel at “off peak” times (e.g., shoulder season)
• Join hotel/airline rewards programs
• Daycations and staycations to save on gas
31. 5. Utilities
• Adjust thermostat (a little warmer in summer [thermostat up])
and cooler in winter [thermostat down]) and use ceiling fans
• Turn down water heater from 140° to 120° to 130°
• Unplug items not in use (power strip)
• Take advantage of off-peak rates/time-of-day meter
• Change HVAC system air filters regularly
• Use LED light bulbs
• Wash (most) laundry in cold water
• Empty dryer lint trap after every load
• Switch to low-flow showerheads
32. 6. Clothing
• Buy fewer clothes and shoes
• Shop department store sales and use coupons
• Join retailer loyalty programs to earn rewards
• Shop at thrift and consignment stores
• Shop for deals online (e.g., ASOS, Mango, Amazon)
• Make clothing repairs and alterations
33. 7. “Big Ticket” Items
• Wait inflation out, if you can (e.g., houses, cars, computers)
• “Rule of Three” product comparisons
• Pay more than the MSRP?
• Lock in low(er) interest rates on loans
34. 8. Insurance
• Play “what if?” with your insurance agent
• Double check policy discounts you qualify for (e.g.,
multi-policy, age 55+ driver, military veteran, long-
time customer, low mileage driver)
• Shop around for coverage (Rule of Three)
• Explore payment options (fewer payments is cheaper)
• Sign up for auto-pay or online billing statements
• Maintain a good credit record
35. 9. Household Budgeting
• Identify “price increase trigger points” and budget
more
– Examples: rent, property tax, insurance premiums
• Review bills for evidence of “junk fee packing” (e.g., cell
phone, cable, event tickets, insurance policies)
• Discontinue low value auto-pay bills (e.g., gym
memberships, satellite radio, streaming services)
• Find ways to cut expenses (YOU decide how)
• Anticipate windfalls (e.g., tax refund, cash back rewards)
36. 10. Saving and Investing
• Review your TOTAL portfolio: Is the return > taxes and
inflation? If not, you are losing purchasing power!
– Minimum Rate of Return formula: MRR = inflation rate ÷ 100
minus federal marginal tax bracket
– Example: 6% ÷ (100-.22) = 6 ÷ .78 = 7.7%
• Ladder fixed-income securities (e.g., bonds, CDs) to
hedge inflation
• Consider Series I bonds, fixed annuities, brokered
CDs, Treasury bills, and online bank savings and
money market accounts for higher yields
• Hang tough; don’t panic and sell quality stocks
37. It Pays to Shop Around!
• 0.24% APY average interest rate on U.S. bank
savings accounts in early April 2023
• You can find mutual funds and ETFs with Treasuries
in duration of 1 year or less paying more than 4%
• Online bank savings and money market accounts and
12-month CDs are paying 3.75% to 4.5%+ (4/23)
• Search “Best Online Savings Accounts” online
38. You Have Options!
• There are likely trillions of dollars sitting in big brick-
and-mortar bank accounts earning practically nothing
• With the Fed Funds Rate at almost 5%, this is not
necessary
• Online banks have no branches (less overhead) and
more competition
• You can buy Treasury bills through Treasury Direct OR
via a bank or broker (secondary market)
39. Positive Aspects of Inflation
• Inflation-linked COLAs on Social Security, some
pensions, some union or employment contracts
• Inflation-adjusted Treasury Inflation-Protected
Securities (TIPS) and Series I bonds
• Higher wages for workers (industry- and company-specific)
• Impact on Debtors- People with fixed-rate loans can
repay lenders with “cheaper dollars”
• Investment Bright Spots- Short term bonds, brokered
and online bank CDs, government money market
funds, and dividend-paying stocks and div. stock ETFs
40. Positive Aspects of Inflation
• Increased contribution limits for tax-deferred
retirement savings plans
• Higher income ranges in the seven federal marginal
tax brackets; people may be taxed at lower tax rates
• Higher standard deduction amount; people can
shelter more income from taxes
• Higher income ranges for IRMAA Medicare surcharge
• Higher estate/gift tax exemption ($12.96 million in 2023)
• Higher bank account interest (shop around for best yields)
41. Inflation-Fighting
Action Steps
• Try to “claw back” inflation-related costs via budget cuts
• Prepare for future variable rate interest increases/reduce debt
• Stop unnecessary automated expenses (e.g., gym, magazines,
newspapers, satellite radio, etc.)
• Negotiate for better prices (e.g., cell phone, insurance policies,
credit card interest); Ask: “What discounts are available?”
• Take advantage of inflation-adjusted income increases via
COLAs (e.g., pension, Social Security, income tax indexing)
• Consider strategies to improve cash flow
42. Inflation-Fighting Lifelines
and Major Lifestyle Changes
All Ages
• Government and non-profit public benefits (e.g., needs-based
SSI, food pantries, utility and rental assistance)
• Multi-generational housing arrangements
• Roommates, boarders, Airbnb, Vrbo, etc.
• Downsizing housing (+ utilities, maintenance, property taxes)
• Life insurance loan or reduced coverage (use caution!)
• Fewer discretionary expenses (e.g., eating out, gifts, travel)
Older Adults
• Reverse mortgages and sale-leaseback
• Working in later life
• Rethinking 2nd car ownership, tapping more savings than planned
43. Where is Inflation Headed
For the Rest of 2023?
Stay tuned!
•Federal Reserve
actions/interest rates
•Ukraine war
•Politics
•SCOTUS student
loan forgiveness
decision
•Supply chains
•Other factors
Source: The NY Times