The prospect of higher inflation and a resulting soaring cost of living is one of the greatest financial fears facing an increasing number of Americans. They fear that the impact of tariffs will be felt more strongly in coming months, chasing up inflation, and making it tougher and tougher to make ends meet.
They also fear that the Federal Reserve—in spite of pressure from the present government—might be forced to keep interest rates close to the present levels. Not only that, but should inflation grow strongly, as tariffs start to bite, the Fed might see the need to increase interest rates once more in order to tame inflation.
The result will be even higher interest rates across the board, from mortgages to automobiles.
Almost all Americans are affected by today’s relatively high inflation in various ways.
Retirees
At one end of the spectrum are retirees.
Most live on a fixed income and they are afraid that greater inflation will chase up their cost of living beyond their capacity to pay. They believe that their income will not increase sufficiently to cope with the rising costs that come with inflation.
True, Social Security adjusts to inflation so any increases will be balanced out and help them to cope. Most do not live on Social Security alone, however. Often their other income is from fixed investments that fail to adjust adequately to inflationary pressures.
In addition, retirees are becoming concerned that future Social Security increases will come in lower than the rate of inflation. So much so that six in every 10 retirees are deeply concerned that rising tariffs will drive inflation above the amounts that Social Security cost-of-living adjustments will cover, according to the 12th edition of the Nationwide Retirement Institute’s Social Security Survey, conducted by the Harris Poll.
Those approaching retirement
These inflationary concerns are being felt beyond today’s retirees. Anxiety regarding the future of Social Security and its ability to keep up with inflation are felt deeply among those planning for their futures in retirement.
The Nationwide survey found that four in five Americans also are concerned that Social Security will run out of funding in their lifetimes.
Parents
At the other end of the scale are parents of young children.
The rising cost of living caused by inflation and financial pressures on families have forced more than half of parents to go into debt in order to provide for their children, according to a survey by National Debt Relief, conducted by Talker Research.
They say their financial situation is stopping them from caring for their children in the way that they would like. Half feel limited in their ability to grow their family.
Single parents are particularly hard hit and are struggling to provide for their children because of the rising costs of living caused by inflation. They place the need to provide for their children ahead of paying off their debt, these parents say.
Indeed, half of the single parents already in debt say their debt has become “unmanageable.”
The findings indicate the extent to which debt is reshaping parenthood today, says Natalia Brown, credit relations officer at National Debt Relief. Families are being forced to choose between their personal well-being and financial health as against the needs of their children.
As a mother, Brown says, she is aware of how heavy the financial need to provide for a family can be. Debt is becoming unmanageable for parents today. Whereas so many are lovingly placing their children first, it is usually at their own costs.
Financial worry dominates their lives so much that parents admit they feel more stressed about debt than factors such as whether they are good parents, ensuring their children achieve their milestones, their relationships with their children, and even their children’s health.
In addition, those in debt are twice as likely to neglect their mental health as well as their physical health than those parents who are not in debt. They also are twice as likely to skip meals.
Inflationary trends are up
All Americans will be greatly helped if inflation eases, prices stop rising and interest rates come down. Right now, however, the trend looks set to take off in the opposite direction.
We need to ask, however, whether the fear of rising inflation is indeed as likely as economists believe it is. Is it possible that inflation will slow and that managing our finances will become easier in the months ahead?
That might happen, of course, but the figures show that inflation already is edging upward, even if slightly, once more.
Companies stocked up on inventory in advance of the tariffs. That inventory has mostly run out and businesses have been absorbing a lot of the tariffs in order to keep their prices at the same levels. Such restraint cannot continue for much longer, however, as clearly businesses need to make a profit and will be forced to pass on the increases to consumers before too long.
Core inflation, which leaves out energy and food costs, was 2.9 percent on a seasonally adjusted rate in July, according to the Commerce Department. That was up 0.1 percentage points from the level recorded in June. It also was the highest annual rate since February.
The core inflation index, which includes all items, came in at an annual rate of 2.6 percent. That amount, which is a benchmark for the Fed, remains above the annual target rate of 2 percent. Clearly, therefore, inflation still has to drop significantly to meet that mark, particularly as it is now edging upward—and economists believe that the global tariffs imposed by the administration are only starting to have their full effect.
The tool that the Federal Reserve uses to fight inflation is interest rates. Under pressure from the government, however, the Fed is widely believed to be intending to lower interest rates at their next meeting, even though it might be small at 0.25 points.
Should inflation continue to edge upward, financial advisers suggest that you:
• Buy only what you need, not what you want.
• Try to get out of debt and so avoid paying high interest.
• Concentrate on finding bargain buys and the lowest price on items.