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Inflation fears are forcing Americans to rethink their financial choices: CNBC Survey

Soaring inflation is causing Americans to reconsider how they spend their money.

The consumer price index, which measures a broad basket of goods and services, jumped 7.9% in February from 12 months earlier. Prices go up on everything from the food you put on the table to the gasoline that powers your car.

It weighs heavily on people’s minds, with 48% thinking about rising prices all the time, according to a CNBC + Acorns Invest in You survey, conducted by Momentive. The online survey was conducted March 23-24 with a national sample of 3,953 adults.

According to the survey, three-quarters fear that rising prices will force them to rethink their financial choices in the coming months.

Inflation costs the average American household an additional $296 per month, according to an analysis by Moody’s Analytics. Experts expect it to get worse before it gets better.

Still, there was no significant impact on consumer spending, although retail sales grew at a slower pace than expected in February.

The biggest area where people have cut back is dining out, with 53% saying they have, according to the survey. They are also driving less and canceling monthly subscriptions, among other things.

If higher prices persist, restaurants, driving, and travel or vacations are the top three areas Americans plan to cut even further.

Admittedly, the past year has been difficult for many. At least 52% said they were under more financial stress than a year ago. They are most concerned about gas prices, housing costs and food costs. Over the past year, gasoline has climbed 38%, housing 4.7% and food prices 7.9%.

Meanwhile, a large swath of Americans are unhappy with the White House’s response, with 61% disapproving of President Joe Biden’s handling of inflation.

Recession fears

In the current environment, a majority of Americans are worried about an economic recession, with 81% of respondents believing a recession is likely to occur this year.

“People are definitely on edge,” said Moody’s Analytics chief economist Mark Zandi. “The risks of recession are high.”

He puts the odds at 1 in 3 and rising.

When will inflation slow down?

Inflation was driven by the pandemic, which scrambled supply chains and labor markets, and made worse by Russia’s invasion of Ukraine, which impacted gas and food prices , explained Zandi.

“If this diagnosis is correct, as the pandemic subsides and we get the other side of the fallout from the Russian invasion, inflation should moderate,” he said.

However, consumers will suffer more in the short term as inflation continues, Zandi said.

“We have a few bad months ahead of us,” he said.

He predicts that inflation will peak around May and by this time next year it will be much lower, depending on how world events develop, as well as the Federal Reserve’s response. The central bank raised interest rates last month to fight inflation and plans six more hikes this year.

If the Fed doesn’t calibrate things correctly, the economy could slip into a recession, Zandi warned.

Navigate higher prices

Grace Cary | time | Getty Images

The first thing to do is take stock of your financial situation.

Asking yourself a few key questions can help you determine where you could cut spending, said certified financial planner Ashton Lawrence, partner at Goldfinch Wealth Management in Greenville, South Carolina.

“What does the cash flow look like? What kind of debt, how much debt are we looking at?” he said.

“It’s about making small changes and controlling where you can control.”

Learn more about Investing in You:
Most Americans are worried about a recession this year
Here’s what consumers plan to cut if prices keep rising
Here’s how retirees can handle higher prices

Once you see where you’re spending money, break it down into needs and wants, and start cutting back on optional things, said CFP Carolyn McClanahan, founder and director of financial planning at Life Planning Partners in Jacksonville, in Florida.

In fact, eating out all the time not only costs more than cooking at home, it’s not as healthy, said McClanahan, who is also a doctor. When you’re at the grocery store, use coupons and comparison shopping to help you save money.

There will be nights when time is tight and you will be tempted to order takeout for dinner. McClanahan cooks in bulk on Sundays and puts meals in the freezer for those nights.

Carpooling or planning car trips to minimize driving can help with gas, as can working from home a few days a week, if possible.

While it’s natural to worry about rising prices, you can’t control them — and worrying about them isn’t good for your health, McClanahan said.

“Think only of the things you can control,” she said.

“Making sure you spend your money wisely is the only thing you can do to help dampen the outside world around you.”

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Disclosure: NBCUniversal and Comcast Ventures are investors in tassels.


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