personal finance

For Everyday Americans, Inflation Is a Double Blow to Bank Accounts


For the past few months, the price of everything from groceries to cars to clothing has increased, straining budgets for households across the country. At the same time, savings have become less valuable, hitting Americans with a double blow to their bank accounts.

The latest consumer price index, which measures changes in how much Americans pay for certain goods and services, finds prices rose an average of 5.4% in July compared to a year prior, mostly driven by food and fuel costs. That's tied with June's increase as the highest inflation rate in 13 years.

Inflation can make it easier to pay off debt and even help bump up salaries. But it also makes savings less valuable and goods and services more expensive. And currently, wage gains in the U.S. aren't keeping pace with sky-high inflation.

How much inflation erodes someone's purchasing power depends on how much they earn and what they buy. But, generally speaking, the pain will be felt most acutely by the households that suffered the most financially during the pandemic, including renter and low-income households, says Gary Zimmerman, managing partner of Six Trees Capital, an investment technologies firm. Then there are the millions of Americans who are still out of work.

These groups "may be disproportionately disadvantaged" by inflation, "having missed out on appreciation in equity and real estate markets just in time to face higher prices for food and rent," Zimmerman says.

Many economists, as well as the Federal Reserve, contend that the rising costs are temporary, and consumers and investors shouldn't worry much. In fact, given the extreme drops in price for many things in 2020, increasing prices now are more or less getting things back to where they would have been without the pandemic, Mark Zandi, chief economist at Moody's Analytics, said recently.

But families are feeling the effects in their bank accounts each month: Food prices increased an average 3.4% last month compared to July 2020, new cars were up 6.4% and energy costs rose 23.8%.

The good news: Some analysts believe that inflation may have peaked. But that doesn't mean grocery prices are going to go back down, or rent will drop, says Zimmerman.

"If the price of a loaf of bread increases, six months later the price won't decrease again," he says. "It just becomes our new normal."

Sign up now: Get smarter about your money and career with our weekly newsletter

Don't miss:

Copyright CNBC
Contact Us