The good news is the Covid-19 Pandemic is somewhat under control now with many people returning to work and fans are back in stadiums at sporting events. The bad news is inflation is becoming a big concern post-pandemic.
Over the past few months, annual inflation has risen at its fastest pace in more than 30 years. Personal consumption expenditures price index including food & energy increased 0.3% in the month of October, pushing the year-over-year gain to 4.4%. That’s the fastest pace since January 1991.
Not considering food and energy costs, inflation rose 0.2% in October, in line with the Dow Jones estimate, and 3.6% for the 12-month period, unchanged from August but at the highest since May 1991.
Unfortunately, the steady inflation increase came as personal income decreased by 1% in September, more than the expected 0.4% drop. Consumer spending increased 0.6%, in line with Wall Street estimates.
The reported inflation rate was pushed by a 25% increase in energy costs and a 4% gain in food. Services inflation rose 6.4% on the year while goods increased 5.9%.
The inflation and income numbers come as the U.S. government is grappling with the reality of higher prices and lower growth. Gross domestic product (GDP) increased at just a 2% annualized pace in the third quarter, the slowest since the recovery began off a recession that ended in April 2020.
Compensation costs also climbed, rising 1.3% in the third quarter, ahead of the 0.9% estimate, the Labor Department reported. That brought the year-over-year increase to 3.7%, slightly higher than Q1 and the fastest acceleration since the second quarter of 2002.
Wages and salaries rose by nearly 5%, compared with 2.7% from September 2020.
The Treasury Secretary Janet Yellen, a former Fed chair, said she still expects inflation to dissipate, though she and other officials have acknowledged that it has been more consistent and longer-lasting than forecasted. Secretary Yellen stated: “Year-over-year inflation remains high and will for some time simply because of what’s already happened in the first months of the year,” Yellen told a news outlet while attending the G-20 summit. “But monthly rates I believe will come down in the second half of the year. I think we’ll see a return to levels close to 2%.”
Yellen noted that consumers have high levels of savings and cash that she said should boost growth ahead.
To be transparent, I believe that inflation will get worse before it get better. Why? Shortage of houses and worldwide supply chain issues continue to be a problem and will be a major root cause of steady, persistent inflation in 2022. In fact, I forecast that inflation will continue to steadily increase in Q1 and Q2 of 2022.
So what can the American consumer do to mitigate the financial effects of inflation? Two words – be E.I.! Now more than ever, it is prudent to modify spending habits focusing on essential expenditures and not non-essential expenditures. Here are some great tips for mitigating inflation by being E.I.
- Higher Gas Prices – Take shortcuts on trips and/or carpool.
- Higher Food Prices – Use coupons and buy generic brands.
- Higher Energy Prices – Ensure no window cracks, install energy-efficient light bulbs, and turn lights off unattended rooms.
Hopefully, the federal government implements effective measures to alleviate high inflation. Even if the federal government does nothing, it is up to you to fight inflation and avoid getting in a bad financial condition. Fight inflation by being economically wise and intelligent about traveling, spending, and using energy resources. You got this!
Jeremy G. Preston, Founder & CEO
E.I. Enterprise LLC