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Inflation: Causes,
Impacts, Mitigation
Strategies, and Benefits
Dr. Barbara O’Neill, CFP®, AFC®
Owner/CEO, Money Talk
https://www.moneytalkbmo.com/
2022 Leading Personal Finance
Topic That “Bled” Into 2023
2022 Flashback
What is Inflation?
Source: Next Gen Personal Finance
Question:
Where Are You or Your
Clients Experiencing Inflation
the Most Right Now?
Three Inflation Causes
Inflation Illustration
Source: Next Gen Personal Finance
Rule of 72
The Rule of 72 also
applies to doubling
prices of goods
and services!
The Rule of 72 in Pictures
The same math
applies to the
doubling of
prices as well
as to savings!
Inflation Measurement Tool
CPI Information Source
Source:
https://www.bls.gov/cpi/
Your Personal Inflation
Rate ≠ The CPI
Historical View:
65 Years of CPI
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)
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)
Source:
https://www.wsj.com/
articles/how-base-
effects-trip-up-our-
understanding-of-the-
economy-66fde398
Inflation Impacts
“Shrinkflation”
• Used by manufacturers to “disguise” higher prices
• Same package size and price but less weight/size/contents
• Often goes unnoticed by consumers
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)
Shrinkflation Learning Activity
Example:
$2.00 ÷ 165 = 0.0121,
twelve thousandths
$2.00 ÷ 147 = 0.0136
thirteen thousandths
“Skimpflation”
Inflation Effects By Income
Source: The Wall Street Journal:
https://www.wsj.com/articles/inflation-takes-
biggest-bite-from-middle-income-
households-11672246653
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%
What Can Individuals Do
About Inflation?
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
Persistent Food Price Hikes
Source: CNN Business Nightcap, 03/08/23
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
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
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
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
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
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
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
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)
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
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
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)
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
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)
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
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
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
Your Personal
Inflation-Fighting Plan
Turn your inflation-fighting plan
into “atomic financial habits”
Small steps can produce big
results!
Comments? Questions?
Additional Inflation-
Fighting Ideas?
Try a few ideas that will work for you.

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Inflation Causes, Impacts, Mitigation Strategies, and Benefits

  • 1. Inflation: Causes, Impacts, Mitigation Strategies, and Benefits Dr. Barbara O’Neill, CFP®, AFC® Owner/CEO, Money Talk https://www.moneytalkbmo.com/
  • 2.
  • 3. 2022 Leading Personal Finance Topic That “Bled” Into 2023
  • 5. What is Inflation? Source: Next Gen Personal Finance
  • 6. Question: Where Are You or Your Clients Experiencing Inflation the Most Right Now?
  • 8. Inflation Illustration Source: Next Gen Personal Finance
  • 9. Rule of 72 The Rule of 72 also applies to doubling prices of goods and services!
  • 10. The Rule of 72 in Pictures The same math applies to the doubling of prices as well as to savings!
  • 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)
  • 21. Shrinkflation Learning Activity Example: $2.00 ÷ 165 = 0.0121, twelve thousandths $2.00 ÷ 147 = 0.0136 thirteen thousandths
  • 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%
  • 25. What Can Individuals Do About Inflation?
  • 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
  • 27. Persistent Food Price Hikes Source: CNN Business Nightcap, 03/08/23
  • 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
  • 44. Your Personal Inflation-Fighting Plan Turn your inflation-fighting plan into “atomic financial habits” Small steps can produce big results!
  • 45. Comments? Questions? Additional Inflation- Fighting Ideas? Try a few ideas that will work for you.