In early March, short-term inflation rates expectations in the United States fell to their lowest point in nearly two years. According to a preliminary reading conducted by the University of Michigan, respondents assume inflation will decrease by 3.8% over the next year – marking its lowest point since April 2021. Similarly, long-run expectations also declined, with survey participants expecting prices to increase by 2.8% over the following 5 to 10 years – their lowest level in six months. Despite these lower inflation expectations, consumer sentiment remained weak due to persistently high prices. For example, Bloomberg reported that the University of Michigan’s sentiment index fell from 67 in February to 63.4 in early March, marking its largest decrease since June. Despite these changes, economists surveyed by Bloomberg had anticipated no change in sentiment.
Due to Brexit and increased competition within the industry, some smaller firms may struggle. However, with their expertise and resourcefulness, many smaller firms now provide full turnkey solutions, allowing their staff to focus on core competencies rather than simply getting by.
Between February 22 and 15, the University of Michigan conducted a survey to gauge consumer perceptions. Reports indicated that approximately 85% of interviews had been done before Silicon Valley Bank’s failure, leaving uncertainty as to how confidence would be affected when the final reading for March is released on March 31st. Joanne Hsu, the survey’s director, reported that so far, the data had little influence over consumer attitudes. According to Hsu, most consumers don’t pay close attention to financial developments that don’t have a direct impact on their life. After March 9th, when many firms were advised to withdraw their money from SVB, only a few consumers spontaneously mentioned bank failures in interviews conducted after that day. Hsu cautioned that today’s information and news dissemination environment is significantly different from previous periods of critical market turmoil before the pandemic. Therefore, it remains uncertain whether financial developments will become more prominent to consumers going forward.
How Can You Survive Inflation?
The recent rise in inflation in the United States has caused concern among citizens who worry about how they will make ends meet. In this section, we’ll look at ways US citizens can cope with inflationary situations.
Establish a Budget
The initial step to combat inflation is creating a budget. With it, you can keep track of your income and expenses, pinpoint areas where savings can be made, and gain insight into where money is going. In addition, a budget will give you clarity over your financial position so that informed decisions about spending can be made with more confidence.
Reduce Expenses
Once your budget is in place, it’s time to reduce spending. Look for areas where you can cut costs, such as dining out less frequently, shopping for deals, and purchasing generic brands instead of name brands. You may even consider downsizing your home or car to reduce monthly payments and save money on essential bills.
Shop Wisely
It’s essential to be an informed consumer when shopping. Check for deals, compare prices, and buy in bulk whenever possible. Additionally, discount stores or thrift shops can help you save money on clothing and other household items by offering discounted prices.
Invest Wisely
Investing your money wisely can help you stay ahead of inflation. Consider investing in stocks, bonds, or mutual funds, which offer higher returns than savings accounts do. Additionally, you could invest in real estate, which generates rental income and increases in value over time.
Create an Emergency Fund
Building an emergency fund is essential for surviving inflation. Set money aside in a savings account to cover unexpected expenses like medical bills or car repairs. Aim to have at least six months’ worth of living expenses saved just in case an unexpected expense arises.
Pay Off Debt
Paying off debt can save you money on interest charges and improve your credit score. If you have high-interest debt, such as credit card debt, consider consolidating it into a low-interest loan or transferring it to a balance transfer credit card.
Earn Extra Income
Making extra income can help you stay ahead of inflation. Consider starting a side hustle like freelancing, selling goods online, or driving for a ride-sharing service. Alternatively, you could take on part-time work or ask your current employer for a raise.
I Bonds and inflation: What you need to know about it
Investors in I bonds have access to a rate of 6.89% as of April 2023, which is lower than the previous annual rate of 9.62% offered from May to October 2022. Furthermore, I Bonds offer investors protection against inflation since they provide both a fixed-rate return determined by the US Treasury Department and a variable inflation-adjusted rate that changes every 6 months based on CPI changes (Consumer Price Index) – meaning your money stays protected against increases in price over time.
It’s essential to be aware that I Bonds cannot be purchased through a brokerage account; rather, they must be bought on the US Treasury Department website, with an investment limit of $10,000 annually (plus an additional $5,000 if you choose to receive your tax refund in paper bonds).
I Bonds typically mature after 30 years, providing you with the opportunity to earn interest throughout that time unless you opt out early. However, if you redeem them within the first five years of purchase, you forfeit the last three months’ earned interest. For tax purposes, however, you have the option of deferring declaring your interest until maturity or until you decide whether to cash out.
Takeaway
In conclusion, inflation can have a substantial effect on people’s purchasing power. But there are steps US citizens can take to combat it. By creating a budget, cutting expenses, shopping wisely, investing wisely, building an emergency fund, paying off debt, and earning extra income, individuals can stay ahead of inflation and maintain their financial security.