Why Inflation Is Still Eating Your Paycheck (Even If Media Says It’s Over)

You may have heard that today’s inflation levels aren’t nearly as bad as they were a few years ago. And that’s actually true.

In June of 2022, the Consumer Price Index, which measures cost changes for common goods and services, peaked at 9.1% on an annual basis. Since then, annual inflation has been cooling.

But that doesn’t mean inflation is back to normal levels, either. And a lot of consumers are still feeling the strain.

Why inflation started to soar

The recent bout of inflation we’ve all been grappling with was fueled by the pandemic. To be clear, the pandemic itself caused a widespread economic crisis. But lawmakers stepped in to prevent that crisis from getting worse. And in doing so, they resurrected the economy but created a new problem — persistent inflation.

What lawmakers did during the pandemic was issue multiple rounds of stimulus checks and make tax code changes that allowed many Americans to enjoy higher tax credits than they’d normally be eligible for.

Lawmakers had good intentions. The economy was in a slump and a lot of people needed a financial lifeline.

The problem is that lawmakers started issuing stimulus checks at a time when supply chains were slowing down. That caused a disconnect between supply and demand that led to higher prices.

More recently, supply chains have normalized to a large degree. But inflation hasn’t quite managed to creep down to the 2% level, which is the level the Federal Reserve likes to target.

In February, the Consumer Price Index was up 2.8% on an annual level. And essential expenses that include housing, transportation, and food were all up on a year-over-year basis. With Americans paying more for these essentials, there’s little room in a lot of people’s paychecks for savings or even discretionary spending.

How to stretch your budget while inflation is rampant

At a time like this, it’s important to spend your money carefully so you don’t use up all of your savings or end up in debt. During periods of higher-than-average inflation, it’s important to try to stick to a budget and know where every dollar you earn is being spent.

It’s also important to have good self-control, and to try to limit what you spend on non-essential expenses like restaurant meals. You may also want to shop for essentials more strategically. That could mean clipping coupons before hitting the supermarket or using apps to find the cheapest gas prices in town.

You may also want to turn to the gig economy for extra money at a time when living costs are so high. Earning extra money could be your ticket to avoiding debt at a time like this.

Plus, inflation may be messing with your financial goals. It may be that you’re struggling to fund your retirement account given your high costs. So a side job could help solve that problem and help you stay on track.

It’s hard to know when inflation will cool down enough for Americans to truly get relief. And there’s concern that President Trump’s tariff policies will cause inflation to get even worse.

Tariffs are likely to make the cost of procuring goods and supplies more expensive. Companies will have no choice but to pass those higher costs on to consumers. So for now, the best thing you can do is spend your money carefully and conserve funds to the greatest extent possible.

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