Inflation is straining the family budget.
Why it matters: The real-world effect of inflation is being felt by millions of Americans in vital areas like fuel, electricity and grocery bills, threatening to undermine consumer spending on discretionary goods.
The big picture: The annual rate of inflation hit another 40-year high in January, rising to 7.5% from a peak of 7% in December, according to government data released Thursday.
- Energy prices have soared 27% over the previous 12 months, used car prices 41% and food prices 7%.
- A Moody’s report last month estimated the average family was spending $250 more per month due to excess inflation, even before the new monthly figures.
Threat level: Low-income households are especially vulnerable despite wage increases.
- For a family of four on a “thrifty” budget, food cost an average of $863 in December, up from $671 a year earlier, according to the most recent figures published by the Department of Agriculture.
- Real average weekly earnings — a figure accounting for inflation’s impact — fell 3.1% in January, compared with a year earlier.
Yes, but: Inflation might finally be peaking.
- There are “some encouraging signs underneath the hood that recent upward pressure from goods shortages is fading,” Capital Economics U.S. economist Andrew Hunter wrote.
- One such area is new vehicle prices, which were flat last month against December after rising more than 1% per month since June.
The bottom line: The fact that the pain might ease soon doesn’t make it any less painful now.