Prices are rising – that means inflation for you

According to another report by the Federal Reserve Bank of New York, American inflation expectations in the next few years also hit their highest levels in nearly a decade.

Overall, the inflation rate is expected to be up to 3.4% in one year – the highest level since September 2013 – and in three years to 3.1%, according to the Fed survey.

How inflation affects you

For the average consumer, a certain amount of inflation isn’t necessarily bad, especially when compared to last year when the Covid crisis led to a widespread shutdown of the US economy.

“Price rallies from a recession are normal,” said Greg McBride, a financial analyst at Bankrate.com.

Many households are well equipped to weather these rising costs, although others are affected by long-term unemployment, potential eviction and food insecurity due to the mixed recovery.

For homeowners, the best way to hedge against inflation and free up some air in your budget is to refinance your mortgage if you haven’t already, McBride said.

“It’s pretty compelling to have the biggest payment in your household budget and cement that at a time when prices are rising.”

With mortgage rates near historic lows, households might even be able to cut their payments by $ 100 to $ 200 a month, McBride added.

If you don’t own a home, there are other ways to refinance high yield debt. Lower interest rates on everything from credit card APRs to personal loans can be a great tool for consolidating and reducing monthly expenses.

Retirement provision in jeopardy

For retirees, there are additional risks of rising prices. Because older Americans often live on a fixed budget, it can be more difficult for them to bear these higher costs.

In addition, they not only pay for escalating food costs, housing and cars, but also for high medical costs, especially with Covid-19.

“Now the money they have for a living is suddenly getting more stressed,” said Boneparth.

To maintain your purchasing power, determine the right assets for your risk tolerance, taking into account your income, expenses and your time horizon.

When inflation is above what you make in Treasuries, that part of your portfolio is losing purchasing power. But there are other investments that make up for that, Boneparth said.

For example, consider a mix of commodities, inflation-protected stocks, and stocks to provide some security.

That’s why you need a pretty healthy allocation, added McBride, “because it protects your purchasing power in times of inflation.”

Subscribe to CNBC on YouTube.

Comments are closed.