With credit card debt at historic highs and inflation expected to persist, what’s the best way to manage the summer ahead?
Been to the gas station lately? Seen the headlines on the financial pages? Inflation is everywhere, and that’s not great news.
But what does it mean for the summer of ‘22? How are we dealing with things right now, and how should we adapt over the weeks ahead?
The price of essentials has been going up for months now, and despite slipping a bit in April, they’re expected to keep rising for the next several months.
At the supermarket, wholesale chicken breast prices are at their highest level in at least 20 years (at $2.70 a pound now). Fish and seafood prices are expected to increase between 5% and 6% this year, and prices on fresh vegetables are expected to go up between 4% and 5%.
Rents are up more than 20% on average. Selling prices for used cars have leveled off (although they’re still up 14% over last year). New car prices have leveled too, but they’re still almost 26% higher than pre-pandemic prices.
“You won’t see incentives,” a Kia sales executive told The Wall Street Journal last month, “because we’re still going to be selling everything we can make.”
Inflation like this can build momentum. Once we start spending more on essentials, we start font-loading our spending too – buying more things sooner rather than later.
In other words, now that we all know we’re living with inflation, we expect prices to go up in the months ahead, so we start buying more now. More spending – more demand – keeps pushing prices up.
And here’s another contributing factor: the stuff we want to buy isn’t on the shelves. The supply chain is still stressed and backed up.
Last year the pandemic slowed down the supply chain. This year, it’s the war in Ukraine, a major producer of food staples and steel, as well as the recent covid lockdowns in China, where major manufacturing and shipping centers have been shut.
So what do we do? Save. Plan. Spend more wisely. Look for alternate income. Take on more work. Or prioritize experiences that don’t cost so much.
But how much of that is feasible? What’s do-able over the next several months?
Last year, the Great Resignation was all the buzz. This year, we’re seeing strong employment rates. The unemployment rate is 3.8% – the same as it was in February 2020, before the pandemic hit.
But the problem of inflation applies here too. Wages have increased by 5% over last year, but inflation has gone up over 8% in the same period. That means our real wages have actually gone down 2.7%
If you’re planning on working more to keep up with inflation, point this out to your next employer. Things are getting more expensive and wages need to keep up.
In April, the personal savings rate was at its lowest in 20 years, reaching 6%. During the pandemic, we saved at a rate as high as 35%.
We might be saving less now because we saved so much last year. Major parts of the economy were shut down, and many of us felt most comfortable building our savings when faced with the pandemic’s uncertainty.
Another reason we might be saving less now (and spending more) is because we’re reacting to being out of the pandemic. A lot of us have been celebrating by splurging.
And even though more of us are celebrating by going out to eat, recent reports indicate “restaurant spending is one of the first things people would cut because of rising prices.”
Last year, a lot of us were prepared to spend more post-pandemic, and in February, we saw a huge jump in credit card spending – a five-fold increase over just the month before. (Experts predicted just a 2-fold jump.)
In fact, American consumers took on $40 billion in credit card debt in February – and then another $30 billion in credit card debt in March. All that post-pandemic spending is going onto lots of credit cards.
But climbing inflation is a factor here too, and with less savings on hand, more of us are using plastic.
Credit card spending is at historic highs – just when APRs are set to increase too. Carrying credit card debt is getting more and more expensive. This is not an ideal time to rely on our cards.
Given the amount of card debt we’re racking up, overspending is obviously becoming the norm. And over the summer, depending on our moods, we still just keep overspending, despite inflation pushing prices even higher.
Is that so smart? Can you afford the expensive summer ahead?
A lot of us don’t have a choice. End of school year splurges will feel like too much. Summer vacations will be cut short or dropped. A lot of us will look for creative alternatives, staying closer to home or doing things more meaningful than what can be bought.
What is your mood anyway? How does the uncertainty of inflation this year compare to the uncertainty experienced during the height of the pandemic?
Do you feel in sync with the economists, listen to their studies and make adjustments as needed? Or do you do what you need to do – spend what you need to spend – whatever it takes?
With a postgraduate degree in commerce from The University of Sydney, Pranay has his finger on the pulse of the finance industry. Breaking down complex financial concepts is his forte.