Inflation has hit a new 40-year high. Not quite the “high” that most Americans want to experience, but there’s not much to be done about it. Over the past year, the costs of food, gas, housing, and other life necessities have been rising at their fastest pace, and it's been squeezing money out of American pockets. Inflation has even been canceling out the pay raises that many people received in the last year since they're now spending that extra money on food, gas, rent, and other basic living expenses — but at much higher prices.

On Tuesday, the Labor Department announced that the consumer price index jumped 8.5% in March from the previous year. This has been the biggest year-over-year increase since December 1981. The report also indicated that inflation rose by 1.2% from February–March, an .8% increase from the January–February number. 

There are a lot of reasons why inflation has hit record highs in the past few months, such as the prices of goods rising because of issues like supply chain disruptions, a vigorous consumer demand, and geopolitical conflict between Russia and Ukraine. Russia’s war against Ukraine has disrupted global food and energy markets. And the more time spent in this war will continue to impact food and energy markets.

American Budgets Constrict

The increase in prices has Americans keeping their budgets tighter and attempting to reduce their spending where they can. Scott Rick, an associate professor of marketing at the University of Michigan who also studies financial decision-making, told The Wall Street Journal:

There’s no going back to the way things were. You have to update and roll with it.

While many economists are hoping that inflation peaked in March, that doesn’t mean Americans will be seeing prices decrease if that’s true. The war in Ukraine is still raging on, and that is going to continue to affect the global food supply and prices. We’re still dealing with delayed and disrupted supply chains that are going to take some time to get back on track.

 Richard F. Moody, chief economist at Regions Financial Corp. said:

There’s an element of sticker shock when people go fill up their tank or go to the grocery store. Lower- and middle-income households are already having to make choices about what to buy because they’re having to pay so much for food and energy. 

This could be creating a consumer pullback. Meat prices were up 14.8% in March from a year ago. Hot dogs and lunch means have increased at the fastest since 1979. And breakfast cereal prices rose 9.2% over the last year — the biggest increase since 1989. This is something that most Americans aren’t used to and seeing those prices, and grocery bills going up each shopping trip makes people reevaluate what is a want and what is a necessity.

There’s no choice but to “roll with it,” but it doesn’t make it any less shocking to the majority of Americans who might not be able to reduce their family’s groceries to fit their budget. I went out to a fast-food restaurant last week and needed to get a quick dinner. I immediately regretted it after how much I paid for the meal for two. I’m a creature of habit and I always get the same meal when I go to the restaurant. When I was there the other day I spent almost $10 on the meal — a meal that I remember being almost $7 over a year ago. That’s when inflation hit me and made me realize families of four or more have probably been feeling the damage to their wallets from these price increases. There’s no way around it. 

While living with this inflation as an American can be difficult right now, there are a few ways that you could combat it when it comes to your investments.

First, you could begin to focus on dividend growth stocks from companies that have a competitive brand positioning, strong balance sheet, cash flow, and earnings growth. When investing in dividend stocks you’re able to take advantage of the company’s appreciation of its stock price and its cash flow growth. 

Second, you could begin to consider investing in real estate. Real estate can increase its value over the year, and if you own a rental property that property could also increase in value in addition to your rental income from that property. 

It’s been a difficult and uncertain time, but if you stay informed and aware of what is going on you can make the right decisions for yourself and your financial future.

Until next time,