Inflation Is High. How Do I Fight It?

Our editor-in-chief gives her two cents on fighting inflation

Headshot of Kristin Myers between illustrations of people.

Dear Kristin,

What is the best way to fight inflation?

Sincerely,

Henry

Dear Henry,

I’m so glad you asked this question, because with inflation at 8.6%, prices are going up everywhere, on everything, for everyone. At The Balance, we’ve been tracking inflation for a while, and have found that food, gas, travel, entertainment, and more are getting costlier. Unless your income is rising in line with inflation (and for most Americans, it isn’t), your wallet is getting dinged. But this doesn’t mean you can’t fight back. By making changes to your budget, cutting back on spending, and rebalancing your investment portfolio, you can weather the inflation storm and come through the other side without causing your finances too much damage.

First, consider the items in your budget that are necessities, like food and housing. While there is little you can do if your rent goes up, you can make sure that you put aside more money in your budget for bills and other expenses. This way, you have a better chance of paying for necessities without turning to credit or pulling from savings. 

You can also get creative and shop around to make the most of deals. In the grocery store, shelf-stable foods have been hit least by inflation, presenting opportunities to save. Frozen foods and vegetables are also cheaper alternatives to canned and fresh items. For household items, you can try shopping online, visiting new stores, or using coupons to cut costs and boost savings.

Secondly, cut spending on unnecessary items. I am not saying that you shouldn’t go out and enjoy time with family and friends, but it might be a good idea to reduce spending in these areas as they get more expensive. Travel expenses like hotels, car rentals, and airfare are all over 20% more expensive than last year while going to movies, concerts, and sporting events will be up to 10% pricier.

Inflation will also hit your investment portfolio, so now is a good time to make some reallocations to mitigate the risks that inflation will bring. Long-term bonds are badly impacted by rising inflation because it erodes their purchasing power. So you want to decrease the number of long-term bonds in your portfolio.

When looking at investments that might help mitigate risk, consider looking at TIPS, or Treasury inflation-protected securities. Unlike other bonds, the interest rate paid out is tied to inflation, so it will increase when inflation goes up, and drop when it goes down.

Another way to protect your portfolio is to invest in companies with pricing power. When inflation goes up, some companies can pass on the price increases to their consumers, so their revenue doesn’t take a hit as operating costs increase. This is beneficial to investors in those companies. 

You should also try to take care of debt. During times of rampant inflation, the Federal Reserve raises interest rates to fight it, which could hurt you if you have debt. Higher rates make borrowing more expensive, so you should pay down any credit card debt so that you aren’t spending more on purchases you previously made. The Fed hiked interest rates once already this year, and more are on the way; so try to reduce your debt load as borrowing will only get more expensive.

Hopefully, as interest rates rise, inflation will come back down, bringing prices down with it. But until it does, some of these tips and tricks should help your wallet.

Good luck!

-Kristin

If you have questions about money, Kristin is here to help. Submit an anonymous question and she may answer it in a future column.

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Article Sources

  1. Bureau of Labor Statistics. "Consumer Price Index Summary."

  2. Bureau of Labor Statistics. "Real Earnings Summary."

  3. Bureau of Labor Statistics. "Consumer Price Index by Detailed Expenditure."

  4. Securities and Exchange Commission. "Bonds."

  5. TreasuryDirect. "TIPS In Depth."

  6. McKinsey. "Passing the Buck."