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Four Ways to Beat Inflation

The rise in inflation has been one of the top economic stories in recent months. After hovering around 2% for the past few years and falling to near zero in early 2020, the annual inflation rate as measured by the Consumer Price Index (CPI) topped 4% in April before shooting up to 5.4% in July and 5.3% in August.

The CPI is a measure of the average change over time in the prices paid for what’s referred to as a “market basket of consumer goods and services.” These include a wide range of items purchased by most households including food, shelter, vehicles, energy, apparel and healthcare.

Rising inflation reduces households’ purchasing power. When it costs more money to buy groceries or fill up your gas tank, there’s less money left over to buy other things. When inflation rises this fast and stays elevated for long periods of time, this can significantly affect many families’ household budgets.

While you can’t do anything about rising prices, there are some things you can do to minimize the effects of inflation on your family’s finances. Here are four ideas to consider:

 

  • Shop more carefully. When prices were rising slowly, if it all, it was easier to shop without paying close attention to how much things cost. But with prices on everyday goods and services rising sharply, it pays to shop a little more carefully. Groceries are one area where frugal shopping can really pay off, starting with coupons. Most grocery stores now make coupon “clipping” easier with digital coupons you can download onto your smartphone. Also consider switching to a discount grocery store if one is located near your home — their prices are sometimes significantly lower than major chain stores. The same principle is true for more expensive items like clothing, furniture, appliances and electronics. Spend a little time comparison shopping online before you head out to the stores, or buy these items online if that’s where the best price is. Remember to factor shipping into your cost comparison with large items like furniture and appliances.

 

  1. Try to negotiate prices if you can. Price negotiation isn’t limited to the flea market or farmer’s bazaar. The prices of some things that you buy every day are more negotiable than you might think. Your cable bill is a good example. With so many people “cutting the cord” and ditching their cable packages for streaming services, cable providers are often willing to offer a deal to retain customers. Streaming services, insurance premiums, health club memberships and cellular data plans are other items where the price might be negotiable.

 

  1. Put off making big-ticket purchases. If you’re planning to buy an expensive item in the near future like a car or boat, consider holding off for a little while if you can. Higher vehicle prices, in particular, have been a big contributor to rising inflation, with the prices of used cars and trucks soaring by 42% in July and 32% in August. Similarly, record prices for building materials and supplies like lumber and steel have raised the cost of making home improvements and renovations this year. It might be smart to delay projects like these until prices start to stabilize, perhaps this winter.

 

  1. Re-examine your investment portfolio. Cash-equivalent investments like savings and money market accounts and low-yield Treasury bonds were already struggling to keep up with the inflation rate before inflation took off earlier this year. Now, these investments are losing even more money on an inflation-adjusted basis.  Given this, you might consider adjusting your asset allocation so there’s less money in cash-equivalents and Treasuries. This is especially true for money that’s dedicated to long-term goals like saving for retirement or your children’s college educations. Conversely, money that you may need in the short term, such as within the next year or two, should probably remain in these low-yield investments to guard against market volatility and remain liquid.

 

Give us a call if you have questions about these and other strategies for beating inflation.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.