Inflation may be slowing down, but the fact remains that prices continue to remain high across various sectors. While this news can be seen as positive for the expanding economy amidst a strong job market, the reality is that prices persist at elevated levels, posing affordability challenges for many Americans. According to Mark Hamrick, a senior economic analyst at Bankrate, “Cooling inflation is not the same as a substantial reduction in prices.” This means that despite the slowdown in price increases, consumers are still facing higher costs for essential goods and services such as homes, vehicles, car insurance, food, electricity, and travel.
The Impact on Everyday Expenses
While it is true that the rate of price increases for food has subsided, with “food at home” inflation remaining near 0% for the past four months, consumers are still experiencing rising monthly costs. For example, U.S. gasoline prices fell by 3.6% from April to May, and housing inflation has also decreased from its peak over a year ago. However, the majority of price increases are merely slowing down rather than dropping outright. This results in consumers spending more on groceries, dining out, utilities, and rent compared to a year ago.
According to a recent survey by New York Life, 61% of Americans report spending more on groceries and dining out, with costs in those categories rising by an average of $209.45 a month. Additionally, 56% of adults are spending $161.45 more monthly on utilities and 48% are paying an average of $302.94 more on rent. This increase in everyday expenses is taking a toll on Americans’ finances, leading to lower levels of financial confidence.
As households struggle to cover the rising prices and higher interest rates, there are signs of financial strain. More consumers are finding it challenging to keep up with payments, with roughly 8.9% of credit card balances transitioning into delinquency over the past year, as reported by the New York Fed in May. Moreover, middle-income households anticipate facing difficulties with debt payments in the coming months.
Charlie Wise, senior vice president and head of global research and consulting at TransUnion, highlighted the impact of rising costs on consumers using credit cards. He mentioned that interest rates on credit card balances are at higher levels, resulting in additional costs for consumers carrying a balance. This, coupled with the continued increase in everyday expenses, is causing more consumers to fall behind on payments.
The shift from an environment focused on inflation to one centered on affordability crisis is evident. As prices gradually normalize and the job market remains stable, there is hope for progress on the affordability front. However, it is crucial for consumers to monitor their expenses, manage debt effectively, and seek financial assistance if needed to navigate through these challenging times.