What to do and what not to do during a period of high inflation

During 2022 and up to 2023, we finally saw the consumer price index (CPI) stabilize, suggesting that it could cool down and start to decline in the coming weeks. The question arises: why do prices continue to rise even when the CPI has stabilized? Today, we’ll discuss the factors behind the rise in prices, as well as the financial pros and cons of the economic climate right now.

Reasons for pricing

Although the consumer price index has stabilized, there are several reasons why prices are still high, and sometimes creep up.

On the one hand, wages have risen. In what many analysts are calling the “Great Retirement,” companies need to raise their wages and pay their hourly workers more. Now this is reflected in the prices of all types of goods and services in all directions.

This leads to our next reason; energy costs are rising. The cost of transporting and safely storing food is now more expensive than it has been in decades. According to the US Energy Information Administration (EIA), the main reason for the rise in energy and fuel prices is due to Russia’s invasion of Ukraine. According to the EIA, the sanctions against Russia, as well as the decline in the country’s oil production, have created “market uncertainty”. For consumers, this means that the cost of moving products is much higher, which directly hits your wallet.

Finally, demand is still strong, despite the best efforts of the Federal Reserve. The Federal Reserve has already raised interest rates four times between May and July and is expected to have two more hikes to follow. This could dampen inflation but also risk plunging the economy into a full-blown recession.

Financial transactions during periods of inflation

There are a few key things to keep in mind when inflation is high. First, avoid loans whenever possible; interest rates are higher and will continue to rise as the Fed tries to cool inflation. Needless to say, this is not a buyer’s market. Now is probably not the time to finance large purchases.

Then put in the effort to shop smarter in every way. See last week’s article “Inflationary Price Rises and How to Fight It” for more information on saving on food and groceries.

Once you’ve developed a strategy for buying food as cheaply as possible, do a full check on your monthly expenses. Are there subscription services that you rarely use? Cut things like this out of your budget to save a few extra dollars each month.

Also, conduct energy audits with utility providers. Remember that the cost of energy is currently volatile and high, so saving energy is key. Do these audits to see where you are spending the most energy and make a conscious effort to use less of it. Never leave small electrical appliances connected to the mains – they continue to consume energy even when turned off. Be sure to turn off lights and fans that aren’t being actively used, and if you live in a favorable climate, turn off your air conditioner at night. You can open windows on both sides of your home to allow natural air circulation and significantly lower your utility bills.

Be sure to look at your mortgage and debt costs. Refinancing your home may be a good option depending on your income and credit score – take a closer look and see if refinancing rates are better than your current interest rates. If this is not currently an option for you, look for better rates on your homeowner’s insurance.

When it comes to personal debt, consider consolidating your debt. If you have student loans, consider refinancing for the best interest rate. If you have credit card debt, look out for 0% APR balance transfers that you can qualify for. It’s hard to avoid paying off debt, but you can make it easier for yourself by not paying more than you need when it comes to interest rates.

If you find that you cannot make minimum payments on loans or credit balances, always contact your lender. It’s better to approach them in good faith and ask for a payment plan that’s within your budget than to miss a payment and risk the balance going to fees (or worse, not paying off your loans). Protect your credit score and always do your best to communicate with your creditors.

Lastly, make sure you set aside a portion of your income each month. Many consumers report that they have not actually changed their shopping habits; they just spend more on the same expenses. This is a great example of what not to do; Set aside “fun” or unnecessary expenses right now. Also, as I mentioned, save big expenses. Saving is the way to go right now.

Financial NOs during periods of inflation

Once again, now is most likely NOT the time to take on new debt. This includes home equity lines, auto loans, student loans, etc. Sometimes these decisions are unavoidable, even in times of economic uncertainty. However, leave such financial decisions as a last resort right now.

Don’t cash out your 401(K), especially if you’re still a long way from retirement. The economy goes down, bounces back, goes down, and so on. Don’t despair – stay the course and be disciplined in your 401(K) investments. Withdrawing this money will incur a commission (and a considerable one), which you will probably regret later.

Don’t panic and sell your assets to make more money quickly; if you don’t have your last few dollars left and you absolutely owe it, avoid it. This may seem like a great time to sell, but such decisions, especially if made in a hurry, can backfire later.

Finally, low interest rates on savings accounts don’t bother you these days. It’s not perfect, but you want to find the best high yield savings account you can find right now. Don’t settle for less than you can get by saving your money, and don’t drain your savings account to pay bills. Again, check with your creditors and providers first before spending more than you have on bills. It may be unavoidable, but you need to research every alternative before spending your savings.

Josh Elledge is a syndicated newspaper columnist with over 12 years of experience in consumer advocacy. His works talk about money-saving skills, strategic purchases and financial life hacks.