Could Inflation Be Worse Than What The Feds Are Watching?
2 Chainz told us that the Feds are watching, but are they really watching the same inflation we are right now?
For the last couple of months, the collective has been focused on what’s the true pace of inflation in the economy right now. We’ve seen the Federal Reserve go back and forth about a “soft landing” in the economy, but the overpowering of social media speaking about “soft savings” is easier for consumers to track. At the time of my writing this, the current rate of inflation is 3.1% - a bit off from the 2.0% that the Reserves want us to be. One of the things that I’ve kept at the top of my theories is that the Federal Reserve is wrong about the inflation rate, I even said this vis short-form content a while ago.
The term “soft landing” isn’t made up either, is like slowing down a car gently, avoiding a jerky stop. It's when the economy cools down to fight inflation (rising prices) without crashing into a recession (economic downturn). It's like hitting the brakes just right, keeping the car steady and everyone safe.
The Current PCE Report:
In January PCE report, inflation - fell to 2.4%, in line with expectations of 2.4%. While I’ve talked about how reports by the Federal Reserve don’t always match the reality of how inflation impacts consumers. The PCE measures the price tag for everything Americans buy—groceries, gas, haircuts, movie tickets, etc.; and is the Federal Reserve's preferred inflation measure. Feds use it to make decisions about interest rates, which affects how much it costs to borrow money. The report tracks how much those prices change over time. This is what many call inflation (prices going up) vs deflation (prices going down). In a nutshell - the PCE report is a snapshot of how expensive life is getting in the US. The Federal Reserve watches it closely to guide its decisions, and these decisions affect how much you spend on things like loans and everyday purchases. If things are falling on reports, why aren’t prices falling for the reality of consumers?
The Reality For Consumers:
When it comes to your wallet - with inflation staying high (prices keep rising), your dollars buy less. Groceries get more expensive, it costs more to fill up your car, and your paycheck doesn't stretch as far - is this a soft landing? And we’ve noticed that consumers have been paying for more at the supermarket. So it makes it an interesting tug of war of if we don’t have “McDonald’s Money”, do consumers have “grocery money”? Some are even finding it cheaper to eat out vs shopping. Plus, coupons and deals are starting to shift, which has been a major help for consumers.
On the other side of the coin with inflation, if the PCE is high - could this have the Federal Reserve doing an about-face vs a pause or halt when it comes to interest rates? If inflation is high, they might raise interest rates to try to cool things down. This makes loans more expensive for everything from mortgages to buying a car. Even if the rates for things ease, would the core costs cool? We haven’t seen this happen yet as home prices keep going up and costs of goods, too. Also, the notion that consumers are spending more due to their having money is so beyond reading the room that it’s funny. Things cost more, so they have to spend more.
What’s Your Inflation Rate?
Consumers, while you are looking at reports about how inflation is cooling - you need to do your inflation check. Now two monthly budgets are alike. Look into breaking your budget out in the same way as the Federal Reserve looks at its “budget”. Understanding your rate of inflation will allow you to know if you need to cut back or add more income to your money plan. There are blog posts that I’ve written that could help you tame inflation in your wallet. I have some additional focus points for reviewing your inflation:
Have you noticed your utilities go up even with the same amount of usage?
How much has your grocery bill gone up? Can you use things such as gift cards or stores like Sam’s or Aldi to help cut costs?
When it comes to your income? Did you get a raise that matches the pace of inflation not only in the economy but also in your budget/spending? What stream of income could you add to boost your bottom line?
Are you using banking products that could help leverage your current money needs? Do you pay too much in monthly fees when it comes to them? Have you started saving your money in HYSAs to beat inflation that could be draining your savings rate?
Is your current budget a real reflection of how your money algorithm looks for this month? How often do you check your budget?
More Callouts + Closing:
There are some ways that you can track inflation in your budget/wallet:
Track your spending: Regularly monitor your expenses, especially for essentials like groceries, utilities, and rent. Note any significant price increases over time.
Compare receipts: Keep past receipts for frequently purchased items and compare them to current prices to gauge individual price hikes.
Adjust your budget: As costs rise, re-evaluate your spending plan. Consider cutting back on non-essentials or finding cheaper alternatives for essential items.
Review subscription fees: Regularly check your subscriptions for services like streaming platforms or gym memberships to see if prices have increased. Consider canceling or switching to a more affordable option if possible. I made this post about putting things on gift cards to track spending better.
When it comes to knowing your money, it’s important now as ever to not only focus on the headline but also look into how your money is directly impacted. What could look like a ‘soft landing’ to them could still be shaky for the rest of us.