Inflation Is Finally Slowing. Could That Mean Lower Prices?

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  • The latest Consumer Price Index showed that inflation has slowed and was lower than expectations.
  • Prices in October were 7.7% higher than the year before, which is better than the 8.2% increase we saw in September.
  • Many households have had to dip into savings or take on debt to cover everyday purchases.

There could finally be some light at the end of the inflation tunnel.

In 2022, inflation has been hanging around like the worst kind of unwanted party guest for far too long. It eats into your grocery budget, pushes up your utility bills, and generally makes life more expensive. It's top of mind for many Americans who've been really feeling the pressure.

But today there's a glimmer of hope on the inflation front. The October Consumer Price Index (CPI) was up 7.7% on the year before. That may sound high as many everyday items still cost a lot more than they did last year. But it's lower than the 8.2% increase in September. It's also less than the 8% that some economists expected.

Might prices start to fall soon?

According to the press release from the Bureau of Labor Statistics, the organization behind the CPI, "This was the smallest 12-month increase since the period ending January 2022." That's certainly a step in the right direction, but it's unlikely to have much impact on your cost of living just yet.

The index shows that housing costs are still high, and food and gas costs continue to rise. The cost of used cars, medical care, and clothing have all decreased month-on-month. Unfortunately, if you're hoping the cost of your Thanksgiving dinner might go down, it's unlikely.

A bad outbreak of avian flu has had a significant impact on prices and availability of turkeys. According to the Center for Disease Control and Protection, over 49 million birds have been infected or culled since the start of the year. The price of butter -- another key holiday ingredient -- has increased because of higher feed costs for cows and labor shortages in production plants.

The Federal Reserve has been taking aggressive measures to slam the brakes on the economy since the spring. It is a delicate balancing act between slowing growth to bring down inflation and potentially triggering a recession by braking too hard. This is one of the first signs that its jumbo rate hikes might be having an impact. Not only might prices now start to decrease, but the Fed might also ease its rate hikes. We'll have to wait and see.

How to manage higher costs of living

A recent National Retail Federation survey showed that over a third of Americans are dipping into their savings to cover everyday expenses. Plus, 32% say they have had to borrow money to keep up with bills. It's hardly surprising given that food at home costs 12% more than it did a year ago, according to the CPI data.

Using your savings or taking on debt to pay for everyday items is understandable, but it isn't very sustainable. You've probably already tried switching to store brands and have become an expert at finding the best deals. But perhaps there are other ways you can shave a bit more off your costs:

  • Start by reviewing your spending: If the word "budget" is off-putting, think of it as putting yourself in the driving seat of your finances. The only way to really cut costs is to know where your money goes and how it compares to your income. You might try a budgeting app, or just look through recent bank statements.
  • Cut back on unnecessary spending: Once you have an idea of where your money goes, see if there are any areas you can cut back. Perhaps there are subscription services you're not really using or a few small luxuries that add up to more than you'd imagined. The current situation won't last forever, so you could make some temporary cuts to reduce costs in the near term.
  • Look for ways to earn more: There's only so far you can cut your costs, but you may be able to bring in some extra cash, particularly as the job market is still relatively strong. That might involve asking for extra hours at work, taking on a side hustle, or even selling things that you don't really need.

Everybody is different, and what works for one person's lifestyle may not work for another. If you drive a lot, perhaps you can cut gas costs by combining errands or using public transport. It doesn't directly save you money, but it's worth maximizing rewards by using the right credit card. Combine it with a cash-back app to get double benefits. On the topic of credit cards, now is not a good time to carry high interest debt -- if you are able to put a dent in what you owe, so much the better.

Bottom line

It's too early to say whether we might finally be able to wave goodbye to inflation. But a slowdown is still good news. The coming months will show whether it's a blip in the charts or we've actually turned a corner. Let's hope it's the latter.

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