If you had to pick a word to define the past couple of years of American finances, it would be inflation … by a country mile.

The good news? Inflation has been tapering off for many months. Maybe—maybe!—we'll find a new word to define a new money era … though we're hoping it's not "tariffs."

The bad news? Prices might not be rising as fast as they were, but they remain high, and that's weighing on the backs of consumers nationwide.

The Tea

A recent Equitable survey of American consumers revealed that 80% of Americans—regardless of income level—are worried about the affordability of everyday living costs.

Unsurprisingly, inflation continues to be the most common obstacle. When asked about obstacles to achieving their financial goals, respondents answered "inflation" more than twice as often as other choices.

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"This has stayed relatively consistent in each quarterly survey over the past year, despite inflation being down significantly from its 40-year peak in June 2022," Equitable says.

It makes sense: When inflation declines, it simply means goods and services are growing in price less slowly than before—it's not until you have deflation (which we certainly aren't experiencing right now) that prices actually go down.

But where are Americans sustaining the most price pain, which Americans are feeling the brunt the worst … and is anything getting a little easier to afford?

The Take

To answer those questions, we'll take a look at a recent Bank of America Institute "Consumer Morsel" exploring just that.

Here are four of the most noteworthy findings from BofA's research:

1. Housing costs are going up … and it's worse for lower-income Americans

BofA: "Using a weighted average for mortgages and rents, we find that housing costs are continuing to increase for all income cohorts, but especially for lower-income customers. Their rent and mortgage payments [were] up 11% in February compared to the 2023 average, according to Bank of America payments data. By contrast, higher-income customers have only seen a 9% average increase."

Among the potential reasons?

Higher-income Americans tend to be homeowners, and mortgage payments (at least principal and interest) tend to remain fixed over time. Plus, many homeowners may have locked in lower payments during the pandemic, when mortgage rates plunged.

Lower-income Americans, on the other hand, tend to rent more and are subject to price increases in rents, usually annually.

2. Insurance payments on the rise

BofA: "Insurance payments of all types ticked up for all income levels last month. Consumers' direct payments to insurance providers were up over 6% year-over-year (YoY), with payments for middle- or higher-income customers growing slightly faster, according to Bank of America payments data."

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Inflation in motor vehicle insurance premiums has been much worse than the insurance average, up 11% year-over-year, according to consumer price index (CPI) inflation data from the BLS.

3. Grocery prices are rising, too

BofA: "Shoppers have had to get creative to save money. Even though grocery prices have been increasing YoY, consumers appear to have been trying to offset some of that by trading down to value or discount grocers. Overall, per household spending at value grocers was up 1.2% YoY, while spending at premium tier grocers was down 1.4% YoY (read more in our latest Consumer Checkpoint)."

That shift to value grocers isn't universal, however. Lower-income households now spent 3.75 times more at value grocers than at premium ones, whereas middle-income households spent 2.6 times as much, and higher-income households just 1.3 times as much.

4. Lower-income households in a bind

The aforementioned categories are a real problem for lower-income Americans. 

Lower-income households spend roughly 95% of their after-tax income on necessity spending (housing, insurance, utilities, groceries, etc.), versus just 20% for higher-income households. So any growth in housing, insurance, and grocery prices is going to be more painful for lower-income Americans in the first place … the fact that they're bearing an outsized amount of that growth just puts them in an even tighter spot.

You can see this through the lens of discretionary spending. While declines in discretionary spending have been slowing over the past few months, lower-income households have still suffered far worse in this respect than their middle- and upper-income cohorts.

5. At least gas is getting cheaper?

BofA does report that sticker shock at the pump is starting to wane:

"Gasoline prices have been falling YoY for the past three months, according to data from the Energy Information Administration (EIA), and gas spending has followed suit. According to Bank of America aggregated credit and debit card data, spending on fuel declined 6.6% YoY in February—about three times the rate of inflation. (Note: Some of the drop may be due to an extra day of spending in February 2024 due to leap year)."

The why is a little tricky, though.

The White House is claiming an "open for business" mindset toward Big Oil is pushing down futures, but there's little evidence there—indeed, American Big Oil companies have said they believe domestic production will plateau soon following record levels achieved during former President Joe Biden's administration. 

More tangible drivers behind the drop in gas prices? OPEC's announcement that it would start increasing production in April, as well as lower demand amid uncertainty connected to President Donald Trump's tariffs.

Young and the Invested Tip: Tariffs might be weighing on fuel demand, making it cheaper … but they threaten to make a host of goods more expensive.

How you can spend a little more smartly

Prices are what they are. Short of looking out for sales and coupons, there are few ways to actually bring down the prices of what you're buying.

But you can be more tactical about where and how you shop. A few pieces of advice:

• Discounts/bulk aren't everything: Every one of us at Young and the Invested loves shopping at big-box and warehouse stores. But that doesn't mean you should buy everything at these stores. We've put together "avoid buying" lists of certain products from Costco and Sam's Club, as well as Walmart and Target.
• Cook at home, sure, but …: It is indeed generally cheaper to eat at home than it is to eat out at restaurants. But if you shop with no discipline, it can actually be just as costly if not more expensive! These tips will help you maximize the cost savings of cooking for yourself.
• Be frugal—not cheap: When you're trying to save money, you might convince yourself to buy the cheapest version of whatever you're looking for. Sometimes it works … but sometimes it will bite you in the behind, causing you to spend more in replacement items than you'd have spent just buying something durable and long-lasting. Rather than just being cheap, you want to focus on being frugal—which means instead of always prioritizing the highest savings, you want to focus on the highest value.

Thank you for reading! We'll see you next weekend!

Riley & Kyle

Young and the Invested

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