Why It Feels Like Inflation is Killing Your Budget

by Miranda Marquit · 12 comments

We’ve been hearing for a couple years now about how inflation is going to stay low for quite some time. While the economy might be growing at a slow pace, and while core inflation (a measure of inflation that leaves out food and energy prices) looks like it’s growing at a slow pace, the reality is that you, as a consumer, are likely to be feeling the pinch.

Indeed, the current situation means that wages have by and large stagnated, but prices are going to rise — and they are likely to be the prices that directly impact you as a regular consumer. No matter what the policymakers and experts say, your experience is likely to be very different.

Food Prices Set to Rise

The USDA predicts that food prices are likely to rise at least 3% in 2012. That’s a pretty hefty boost, and it’s hard to reduce your exposure to inflation when it’s food inflation. You can grow your own food to help offset some of the costs, and save it (bottle, dry, or freeze) for later. However, chances are that you are largely going to be impacted by these prices.

Energy Prices Heading Higher

While modest increases are expected in the cost of electricity, as well as in other areas related to energy, what’s really going to hit you in the wallet is the price of gasoline. Some are predicting $5 a gallon gas for some markets this summer. It’d be nice if releasing some of the oil reserves and drilling more in the U.S. would help, but, any relief from such measures would likely be short-term and relatively small. Oil is a global market, and that means the price of gas is likely to be more influenced in the long run by geopolitical issues (even though we get most of our oil from Canada and Mexico) and demand from the growing middle classes in Asian countries.

Health Care Costs Continue to Rise

No matter what the Supreme Court decides to do about the Affordable Care Act, one thing is certain: Health care costs are going to rise under the current system. If the recent reform act remains intact, prices will rise over time. If the law ends up being struck down, prices will still rise. The law didn’t offer any truly fundamental changes to our system, and that means that health care costs will continue to rise. I see substantial yearly increases in my health insurance premium, and I rarely make more than one preventative care visit to my doctor. You can live healthy to help combat the costs, but the fact remains that you will still continue to see premium hikes — no matter what you do.

Higher College Costs

Finally, if you are paying for college, you will see continue rises in costs. (Unless, of course, the higher education bubble bursts.) From higher student loan interest, to higher tuition and fees, the cost of college is rising much faster than the rate of inflation.

Bottom Line

It’s fairly obvious that many consumers are feeling the pinch of rising costs. This is because the expenses that are most likely to cost us the most continue to rise in price — and they are mostly things that many of us can’t do without.

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{ 12 comments… read them below or add one }

Carl Lassegue April 24, 2012 at 9:31 pm

The areas that trouble me the most are the rising costs of food, and gas because there is little alternatives to curb these costs. Like you said, you could grown your own food but it would take up a lot of time.

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Marbella April 25, 2012 at 12:41 am

Here in Spain drops prices on groceries, clothing, craftsmen, etc. but all state-controlled prices are rising slowly electricity, gas, gasoline, tobacco, alcohol, charges to municipalities, etc. so that neither increase nor decrease and it will probably continue like this for a few more years.

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Joe Morgan April 25, 2012 at 9:50 am

I know a lot of people who claim inflation is low, but that’s only the core rate (as you point out). The problem is that inflation is hitting necessities, while the prices of wants (i.e. consumer electronics) is falling..

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Zenobia Judge April 25, 2012 at 11:59 pm

Some are predicting $5 a gallon gas for some markets this summer.

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Robert April 27, 2012 at 5:09 am

Good article. I realized costs were increasing greater than the claimed 2 or 3%. A little research found this website where energy and food costs are tracked every month: grandpappy.info/hhyperin.htm. For example, milk is up 50 cents a gallon in the last year.

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DSO April 27, 2012 at 9:06 am

I’ve been feeling inflation a lot more this year than anytime before. Eating out at both cheap and nice places has gone up 10-20% for us. It makes staying in a lot more attractive. We’ve even started trying to perfect certain foods so we don’t have to waste money buying it out.

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Lee April 27, 2012 at 9:34 am

We hit $10 a gallon here in the UK recently, so you have a little way to go yet before you start feeling the gas pain at our levels. You are so right about food inflation, and there really is very little you can do about it other than chip away at the edges.

The price of utilities here (natural gas, electricity, water) only goes up up up as well. I haven’t had a pay raise since 2008 and yet prices overall have increased by around 20% since then with no real end in sight.

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big menswear April 27, 2012 at 11:19 pm

I filed my taxes electronically on one of the commercial websites in early February. My state tax was direct deposited into my bank account in 3 days.ac

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Household Budgeting Guy April 28, 2012 at 10:55 pm

I was talking a couple of weeks ago with a group of teenagers about our personal inflation rate and how that figure is what we need to concentrate on. When we do that, then we are concentrating on cutting expenses, trying to “make up” for the higher costs elsewhere.

I know, eventually something has to give. However, there always seems to be a place to cut back on.

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Financial Samurai May 1, 2012 at 8:52 am

There is no inflation. At least that’s what the government has told us.

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Renn August 26, 2012 at 6:05 pm

At a certain point, does it make sense to continue working like a slave in order to pay higher and higher prices.

Something has got to give.

I’ve decided to work a minimum wage job and live on less just so I don’t feel like I’m getting taken advantage of.

Every time they inflate the money supply, it’s for the benefit of the banking class at the expense of the little guy. We’re being wrung dry.

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Renn August 26, 2012 at 6:05 pm

Better to get right with the Lord Jesus. He’s coming soon to save us from this hopeless situation.

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