10 Ways to Beat Inflation

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Inflation means prices are rising. With inflation, a dollar buys increasingly less. Really bad inflation can destroy economies and governments. In post-World War II Hungary, prices doubled every 15 hours, says The Atlantic.

American inflation concerns aren’t in the same ballpark. Not even on the same planet. Still, you feel it when prices rise. See for yourself: The American Institute for Economic Research’s cost-of-living calculator shows the purchasing power of money over time. For example:

  • Today, $1,815.38 buys what you got for $100 in 1936, during the Great Depression.
  • In 1936, prices dropped; you needed just $65 to get what had cost $100 in 1920.
  • Today, you need $137.21 to duplicate $100 worth of purchases in 2000.

If inflation is low, why am I hurting?

Prices rose in 11 of the last 12 months, says the Consumer Price Index, a government report from the Bureau of Labor Statistics. The CPI tracks changes in prices of items and services bought by urban consumers, which most Americans are.

Officially, inflation was 2.1 percent in June compared with the same time the year before. Energy prices were up 3.2 percent, food 2.3 percent and everything else was up 1.9 percent, says The Wall Street Journal.

If you’re an economist, or if you’re making good money and getting regular raises, this small rise is a welcome sign of economic recovery, a sign that spending is picking up. But for people on a fixed income, workers who haven’t seen a raise in years and those making less now than before the recession, rising prices really hurt.

Inflation is on target for the government’s goal of 2 percent yearly price growth. No need to worry, at least right now. But if inflation is OK, why are we feeling so pinched by prices?

As Stacy Johnson, Money Talks News’ founder, explains: “We all have different inflation rates, depending entirely on what we buy.” In the video below, Stacy tells the story of rising prices and how they hurt. After watching, keep reading for more on how to fight back against inflation.

Your personal inflation rate

Inflation’s effect depends on how much of your income goes to things whose prices are rising: food, electricity, gasoline, airfares and housing. Lower-income families are hit harder when prices rise for the basics because that’s the bulk of their spending.

Bloomberg says:

Does your favorite dish rely on romaine lettuce (up 17.5 percent year-over-year according to the Labor Department) or white potatoes (which are down 10.3 percent)? If you’re a vegan, do you buy only organic? Do you cook at home with cheap, basic ingredients like beans, grains and veggies, or do you buy prepared foods like meat substitutes that can be pricier than real meat?

Inflation for everything the CPI measures has grown 47.4 percent since 2000. The American Institute for Economic Research created an alternative measure, the Everyday Price Index, which puts more emphasis on everyday necessities, like gasoline. The EPI shows prices growing 69.1 percent since 2000.

Here’s how the EPI says individual prices changed since 2000:

Price changes: Jan. 2000-June 2014

Purchase *Percent change
Heating oil 232
Gasoline 183
College tuition & fees 130
Water and sewer bills 106
Medical care services 79
Child care 72
Public transportation fares 71
Electricity 68
Airfare 54
Movie & theater tickets 52
Restaurant food 48
Food at home 44
Shelter 42
*Source: American Institute for Economic Research

Inflation actually can be helpful in some cases, for example, if you are paying off a loan. A student loan payment of $400 eats more of your income today, for example, than it will after 10 years of inflation, assuming your income grows with inflation.

Inflation also helps if you paid pre-inflation prices for something you’re selling at today’s prices. For example, suppose you’re making mortgage payments of $900 a month on a rental property you purchased. As the cost of rent rises, your profit grows because your mortgage payment remains the same. And if you sell the property, it will probably fetch a higher price than you paid.

10 ways to cope

You can’t stop inflation. But here are 10 tips for softening its effect on your finances:

1. Substitute

Enjoy the same types of purchases but substitute lower-priced options. Go ahead and buy that new car, for example, but get a Chevy Spark ($12,170 to $16,435 manufacturer’s suggested retail price) instead of the Mini Hardtop ($20,450 to $24,100 MSRP) you had your eye on. (Better yet, buy a used car for even more value.)

Consumers already are making some price-conscious substitutions to keep up with inflation. Writes the Wall Street Journal:

Chipotle Mexican Grill Inc. this year raised steak prices by about 9 percent and chicken prices by about 5 percent. “We have, in fact, seen some customers shift from steak to chicken,” chief financial officer Jack Hartung told analysts Monday.

2. Buy generics

Giving up your loyalty to brand names gives you protection from inflation in many categories. You can find equivalent quality (read and compare labels to be sure) by switching to grocery store brands, generic prescription products, store-brand over-the-counter medicines and store-brand clothing, to name a few examples.

3. Shop smart

Make sure you are getting the most for your money by buying used vehicles, tools, clothes and household gear, using coupons and buying in bulk. Use discounted gift cards and try the frugal hacks found at Money Talks News.

It doesn’t matter which system you use, a spreadsheet, an app, tracking software such as our partner PowerWallet, or the back of an envelope. But do track your spending if you really hope to rein in expenses.

From our Solutions Center: Click here to effortlessly track your expenses, free

4. Buy I savings bonds

I savings bonds “are a low-risk, liquid savings product. While you own them they earn interest and protect you from inflation,” says the U.S. Treasury.

Currently, they pay 1.94 percent, based on a fixed rate of 0.10 percent and an inflation rate of 0.92 percent. The fixed rate remains throughout the bond’s life and the inflation rate changes every six months, rising or falling with inflation.

5. Invest

I Bonds help, but to beat inflation, you’ll need to take some risk by investing in the stock market. See: “Ask Stacy: How Do I Get Started Investing?

6. Buy a home

Over the long haul, home prices have kept up with inflation, the Journal says. However, don’t buy a home if:

  • The payments and upkeep would leave you financially strapped.
  • You may need to move quickly for work.
  • You can’t stay at least five years.
  • You aren’t the type to do the maintenance.

If homebuying is a prudent move for you, now’s a good time. Depending where you live, homeownership still can be cheaper than renting. Buying today lets you fix your housing costs relatively low. Your mortgage payment will look increasingly better as rents rise around you. (Here’s help with the rent vs. buy decision.)

7. Don’t wait to borrow

Inflation can include higher interest rates. If you’re thinking of borrowing money, now’s the time to swing into action because the economy is slowly improving and the Federal Reserve eventually will end its support for low interest rates.

8. Drive a fuel-efficient car

Gasoline prices can fluctuate suddenly depending on events like international conflicts, bad weather, and scheduled and unscheduled maintenance of refineries. There are two ways to protect yourself from rising fuel prices:

9. Don’t go in debt over college tuition

Don’t get sucked into the name-brand college game if you can’t afford it. There are ways to get a good education without bankrupting your future. A few examples:

  • Attend a local school and live at home.
  • Go to community college for two years and then transfer to a bigger school.
  • Earn pre-college credit in high school.
  • Work off loans through college loan forgiveness programs.

10. Exercise

The cost of medical services grew 79 percent since 2000, according to the EPI.

Insurance helps, but it doesn’t cover the whole bill. Even seniors on Medicare can’t escape: A 65-year-old couple retiring this year can expect to pay $220,000 out of pocket for medical expenses over their retirement.

Here’s how to drive down your costs: Up the odds of staying healthy by exercising hard. This New York Times video of one physician’s free regime shows how simple it can be to get started. “Exercise is the best medicine,” Dr. Jordan Metzl told the Times.

What are your tips for beating inflation? Chime in by posting a comment below or on Money Talks News’ Facebook page.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • Sherrie Ludwig

    We have done all of these things. And started growing some food. And baking our own bread. And stopped buying any books or dvds, using the library. And gave up satellite (or cable) which means NO tv broadcast in our area. And no new clothes shopping for the last three years except for replacing underwear. (Everything else – thrift shop). And taken on two part time jobs. We are still hurting due to hideous medical bills (WITH good insurance!) NOW what? We have no debt except for the mortgage, which is within four years of payoff. But, it’s still hand-to-mouth. AND, we’re supposed to save for retirement, too?

    • Bob K

      Get additional education. There are on-line programs for most degree subject areas.

      • Sherrie Ludwig

        Nice idea, but in my area THERE ARE NO JOBS except low-paying service and retail. I am college-educated, with some graduate business and statistical coursework, with computer, accounting and management background. I’m also nearing 60, was self-employed for over thirty years, and closed my last business to take care of a sick husband (who thankfully recovered enough to continue work). Oh, and moving for work? Even after paying down our mortgage aggressively, our house is worth 60% of what we paid for it and we still owe a packet on it, assuming it would sell at any price (NO demand in this rural area). And then, what happens to my husband’s job? 2007-8 basically killed almost all manufacturing, office, (most retail) and all tech service jobs in the two county area, the one I live on the edge of and the neighboring one.

  • shondell mann

    Yes inflation has always been financial difficulty, sometimes it even boils down riding a bicycle to and from the local grocery store so be it. This way you can knock out two in one !

  • Bob K

    You missed one of the best options – get additional training and/or education to bump up that salary. In my field (food industry) a MS degree in food science, microbiology, engineering or an MBA means a better informed/trained individual, ready for more responsibilities (and more salary). There are other areas, such as insurance, where larger companies offer short courses for their employees. The conventional wisdom regarding age and insight in a discipline is that one greatest contributions in the field of mathematics and physics is likely to occur when an individual is in their 20s, perhaps early 30s. For many other fields such as social sciences, humanities and business, the individual peaks in their 40s or 50s, since breakthroughs often occur there when an individual can merge and apply several diverse areas simultaneously to a problem – something older individuals tend to do better. The point – you are never too old to get that M.S. (particularly if you can get the company to pay the tuition – which is the norm in the food industry). If you are 40, the odds are you will be 46 in six years; you can be 46 with some additional training/education or you can be 46 without it, either way 46 is going to happen.