War, pandemic and supply chain issues.
Inflation on everyday expenses has increased the cost of living for all Americans and it does not seem to be stabilizing anytime soon. The current inflation is caused by the ongoing conflict between Russia and Ukraine, which has driven up the price of oil and food due to sanctions and export disturbances from those two countries. Food prices were up more than 10% last month compared to May 2021, while energy surged more than 34%. Other reasons are also the strong economic rebound caused by people's spending habits after coming out of the pandemic. Further, Covid-related shutdowns in China has contributed to the world-wide supply chain issues.
The response from the Fed
The Federal reserve responded by raising interest rates by half a percentage point to slow down the economy and help fight inflation. This is the largest increase since 2000 and would make borrowing money more expensive so that consumers and businesses can hold off on large investments, thereby reducing demand and hopefully lowering prices. For consumers, that means mortgages, credit cards and other loans will be more expensive. As prices are currently so high, consumers would naturally decide to save their earnings.
Extreme price increases in food and energy.
All over the news we heard that gas is over $5 a gallon, but other increases are less reported.
Below is a chart of how much prices have changed from May 2021 to May 2022 per category. As you can see energy costs have increased by double digits, with electricity increasing by 16.2%. Data from Statista.
Food prices are increasing due to high fertilizer costs and supply chain issues along with the war in Ukraine. Which food ingredients have the highest increases? According to the Bureau of Labor statistics, eggs were up 32.2%, butter/margarine was up 20.2 percent, chicken up 17.4% and citrus fruits up 17.4% year over year.
Residential electricity bills have been climbing for months amid mounting natural gas prices and low fuel supply. They’re likely to go up even more as summer heat increases demand due to more people blasting on their air conditioners and other indoor devices. Barclays PLC calculates that monthly power bills will be almost 50% higher than 2021. Unfortunately, Consumers will need to start decreasing their spending and plan to better budget their expenses until the economy turns around. We have written a helpful article on budgeting methods that are easy and fun. Check it out here.
Save on your electricity bills during a heatwave.
Electricity bills have increased drastically, but there are programs to help you save and earn to lessen the blow. Meltek is a free service that pays people to reduce electricity consumption during high demand in the summer heat. Simply unplug devices, raise the temperature of your AC and get rewarded! Utility companies, such as Con Edison, would rather pay you to use less energy than fire up polluting and expensive peaker plants.
When you reduce your energy consumption, you earn. Sign up for our free program and start earning with us. We’re here to help you save money and save the planet!