Consumer prices rising at historic pace: What it means for your personal finances

Inflation risks are rising and consumer prices have soared to their highest level in more than a decade, driven by rising car prices. (iStock)

Consumer prices rose in May and rose 5% year on year, seasonally adjusted – the highest annual growth since August 2008, when prices rose 5.4% annually, according to the latest consumer price index from the US Bureau of Labor Statistics. The increase marked the highest rate of increase in almost 13 years and was driven by the backlog due to the COVID-19 pandemic.

When prices are rising faster than you can keep up, consider taking out a personal loan to consolidate the debt and lower your monthly payments. Check out Credible to get you started and compare multiple plans at once.

SOME OF THE BEST PLACES TO GET A PERSONAL LOAN

Overall, rising prices mean that basic needs such as food or means of transport are becoming more expensive. Americans who delayed buying a car during the pandemic are now venturing more regularly and in need of a vehicle – only to find that they could potentially be ousted from the market.

The surge in consumer spending was largely driven by the sharp rise in the used cars and trucks index, which rose 7.3% annually in May, the report shows. This comes as no surprise given that consumer credit rose at a seasonally adjusted annual rate of 5.3%, or $ 18.6 billion, in April, driven by an increase in auto loans, according to the latest Federal Reserve report.

The high demand as the economy reopens, low supply shocks and rising inflation lead to increases in car prices and the volume of automatic lending. Cars accounted for about 30% of all consumer spending in May, while the food index rose 0.4%.

If you want to get a car loan but need to find ways to make it more affordable, you should look for ways to lower your car insurance premiums. With Credible you can compare several car insurance providers at the same time and choose the right tariff for you.

HOW TO CHANGE YOUR CAR INSURANCE

However, as prices rise, there is a risk of higher inflation rates. Average inflation expectations for the coming year rose to 4% annual inflation in May, up from 3.4% in April, according to the latest consumer expectations survey by the Federal Reserve Bank of New York. This is the seventh consecutive monthly rise in future inflation expectations and hits an all-new poll high.

If inflation rises, the Federal Reserve may consider raising interest rates. Currently, the Fed is not planning any rate hikes until at least 2022, but Treasury Secretary Janet Yellen recently noted that a rate hike may be necessary to prevent the economy from overheating if future inflation remains high.

This could mean options like refinancing your home loan, car loan, or student loan are off the table. Higher interest rates can also increase your monthly payments if you decide to buy a home or a car.

For the real estate market, expectations of rising home prices rose in the coming year by 0.7 percentage points to 6.2% and thus well above the 2020 average of 2.3%. According to the consumer expectation survey, it marked a new series high for the third month in a row.

If prices and interest rates rise at the same time, inflation will fuel. Monthly car and home loan payments are getting more expensive, and Americans may have trouble keeping up. If you are interested in obtaining a home loan before the effects of inflation cause house prices and rates to rise, visit Credible to compare multiple mortgage lenders and interest rates at the same time.

JANET YELLEN: INTEREST RATES MAY NEED TO INCREASE TO ENSURE THE ECONOMY WON’T OVERHEAT

Supply bottlenecks and annual inflation lead to price increases for cars, real estate and more. While many Americans believe prices will continue to rise, their outlook for the job market is more optimistic. Unemployment claims are expected to decline and the percentage of those who said unemployment will rise by next year will hit record lows.

In addition, the median earnings are expected to rise in a year, according to the Fed survey.

If you are interested in taking out a loan to save money and lower your payment before interest rates and prices continue to rise, reach out to Credible to speak to a loan professional and answer all of your questions.

Do you have a finance-related question but don’t know who to contact? Email the Credible Money Expert at moneyexpert@credible.com and your question could be answered by Credible in our Money Expert column.

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