Inflation Reached 7.5% in January, Hitting a New 40-Year High

How high can prices go?

It shouldn’t come as a shock that the cost of living is way up. Just take a look at your most recent grocery bills. Chances are, they're substantially higher than they were a year ago.

But even economic experts were shocked to see just how much inflation soared last month. In January, the Consumer Price Index, which measures changes in the price of consumer goods, reached 7.5%. That represents the highest annual increase since February 1982.

Big drivers of that higher number were both groceries and energy. Food costs rose 7% compared to January of 2021, while energy prices rose 27%. Housing, furniture, used cars, and healthcare also got more expensive.

How to cope with rampant inflation

Inflation has been soaring since mid-2021, and it's making it harder for consumers to make ends meet. If you're having a hard time keeping up with your bills, here are some steps worth taking.

1. Assess your savings

Ideally, you wouldn't have to dip into your savings account to cover your monthly bills. But if you're falling a little bit short and you have a healthy cushion in savings, dipping in temporarily isn't the worst thing. It's definitely preferable to landing in credit card debt.

Say you have $12,000 in savings, and lately, your monthly paycheck is coming up $200 short. While you wouldn't want to have to remove $200 a month in savings for the rest of your life, if you have to do so for a few months until living costs dip downward, that's a reasonable thing.

2. Rethink your spending

You may already be living quite frugally, leaving you with few expenses to cut back on in your budget. But if that's not the case and you're struggling to pay your bills every month, you may want to consider slashing some expenses temporarily until living costs come down. That could mean downgrading your cable plan or canceling your gym membership.

3. Get a second job

Working a second job isn't easy when you already have a full-time role. But if you're unable to cover your monthly bills, it's something you may need to resort to on a temporary basis -- at least until living costs start to drop.

The good news is there are numerous flexible side hustles that could give your income a nice boost. Signing up to do data entry or write web content from home, for example, could give you extra money for bill-paying purposes without being too much of a burden on your schedule. Similarly, driving for a ride-hailing service is something you can do at your own pace, so it may be a good solution for now.

It's hard to know how many more months of rampant inflation we're in for. But if you've been struggling in the face of higher living costs, don't just resign yourself to debt. Instead, come up with a plan to tackle the problem at hand rather than let it wreck your finances.