Inflation: Where Consumers Plan to Cut Spending
If you’re living paycheck to paycheck, inflation has probably made life even more challenging for you. With the Consumer Price Index jumping 8.6% year over year in May, money is even tighter for many families. This is the fastest rate of increase in four decades. If you’re starting to look at where you can cut spending, you are not alone.
According to the CNBC and Acorns Invest in You survey, if price pressure continues, more than 50% of adults say they will cut spending on dining out and will consider reducing that further. Consumers are also cutting spending on subscriptions, vacations, and gas, according to the survey.
The survey asked respondents, which of the following, if any, have you done in the past six months because of higher prices? The results were:
- 53% cut back on dining out
- 39% cut back on driving
- 35% canceled a monthly subscription
- 32% switched from a brand-name product to a generic product
- 29% canceled a trip or vacation
- 22% delayed buying a car
- 20% borrowed money or took on credit card debt to cover expenses
- 15% delayed buying a home
- 13% did not pay my bills
Nearly half of all adults surveyed said they think about rising prices all the time, while 55% of those with annual household incomes of $50,000 or less are constantly checking costs.
What caused this current state of inflation?
Many things have contributed to the current state of inflation, but they fall within three buckets.
Strong demand is one of the leading causes of current inflation. Consumers started spending big in 2021 as Covid-19 protocols lessened. The pandemic kept many Americans at home, saving money. There was less dining out, less traveling, and fewer reasons to spend money on everything from clothing to makeup. In addition to these savings, many households received government support. When life started to return to normal, many families had money to spend on all the things they couldn’t do for months. This led to increased demand for many items.
Lack of goods is another contributor to inflation. While life started to return to normal in the states, Covid was and is still impacting countries around the world where we get our goods from. Factories in the U.S. and overseas continue to be impacted by Covid. Global shipping backlogs and reduced production have also contributed to a product shortage. As demand continued to rise, companies have been able to charge more for goods without losing customers. China’s continued lockdowns are making supply chain issues worse. At the same time, the war in Ukraine has cut into the world’s supply of food and fuel, causing gas prices to surge.
Service demand has also impacted inflation. People are also spending more on experiences and travel, allowing airlines and hotels to charge more. These industries are also experiencing labor shortages, and airlines are dealing with fuel shortages on top of that. Rent is climbing as there are a limited number of apartments. Restaurant bills are higher as food and labor costs increase.
How can I deal with inflation?
As an individual, there’s little you can do to influence supply chain shortages or shipping backlogs, but you can cut spending in some key areas to combat inflation in your home. Now is a great time to reevaluate your budget. Pay attention to what products and goods have become more expensive and determine if there are less expensive swaps you can make. Put off major expenses when possible. Look for alternative transportation to combat increasing gas prices.
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