All but a fortunate few households fell victim to inflation in 2023. A new GOBankingRates survey of more than 1,000 adults found that nearly nine out of 10 people reported increased expenses over the last year.
For money pros whose clients were already dealing with precarious financial situations, this is not surprising news.
“I’ve observed that most of my clients are experiencing increased expenses, primarily in essential categories such as groceries, utilities and healthcare,” said attorney and personal finance expert Loretta Kilday, Esq., of Debt Consolidation Care. “The ongoing inflationary pressures primarily drive these rising costs.“
Most Increases Were Modest, but Enough To Pinch Budgets
About 13% of the study’s respondents did not notice their expenses rising, and for most of those who did, the damage was relatively manageable — roughly 53% said they spent less than $2,500 more than the year before.
Another 23% saw their expenses rise between $2,501 and $5,000, and then there was a drop-off to much smaller percentages who suffered more acutely.
Nearly 7% said they spent up to $7,500 more this year than last, 2% saw their expenses rise by up to $10,000, and another 2% took a five-figure hit of more than $10,000.
Inflation Is Way Down, but Still Punishing in Some Categories
The most recent Consumer Price Index (CPI) report revealed that prices rose 3.7% between September 2022 and this September, unchanged from August. While that’s still higher than the Fed’s target rate of 2%, it’s welcome relief from June 2022, when pandemic-era inflation peaked at 9.1%, the highest since 1981.
But the 3.71% CPI increase is an economy-wide average. Inflation has sent prices up much faster in some categories than in others.
Food Prices Are Rising Faster Than Average
When asked about the most significant unexpected expenses they encountered this year, the largest share of the study’s respondents by far, 34%, answered food. That conforms with the data. The USDA reported that food prices surged by 5.8% in 2023 and could reach 6.1%, much higher than the overall CPI of 3.7%.
The impact of that outcome is evident to personal finance professionals on the ground.
“One of the biggest complaints I hear from the people I work with is how much higher their grocery bills have become over the last year,” said Jake Hill, CEO of DebtHammer. “It’s easy to cut nonessentials out of your budget when the going gets tough, but reducing food expenditures can be tricky.
“Most of the people I work with have expressed feeling anxious about how to feed their families, especially for the upcoming holiday season. The increase in grocery prices is forcing all of us to be more creative than ever before about our food budgets.”
Other Necessities Are Causing Pain, As Well
As Hill pointed out, people have to eat no matter the cost, but groceries aren’t the only unavoidable spending category that snuck up on people this year.
More than one in four respondents cited gas and transportation as the unexpected expenses that hit them the hardest. Like food, gas prices are way down from their 2022 peak but still high — $3.31 per gallon as of Nov. 20.
Another 12% cited housing — here, too, prices have fallen from their peak but remain prohibitive for many — followed closely by 11% who said utilities were the biggest shocker.
The study’s results reflect the sentiments that financial professionals are hearing from the people they serve.
“My clients are reporting higher costs in areas such as housing, utilities and healthcare,” said financial advisor Kami Adams, licensed senior benefits advisor and founder of Creative Legacy Group.
“These rising expenses are affecting their overall financial well-being, leading them to seek strategies for managing and mitigating these increased costs.”
Student Loans and Interest Rates: The Non-Inflationary Budget-Busters
Lingering inflationary pressures account for most of the increase in household expenses, but interest rates are higher than they’ve been for most of the 21st century. That makes everything from car loans and mortgages to financing for major appliances and other big-ticket items feel more expensive, even if the price is the same.
The other heavy addition to millions of budgets came when the pandemic-era pause on college loan payments ended in October.
“We are finding that many people have resumed their student loan debt payments and that it’s putting them over the edge,” said consumer finance and debt expert, Andrew Housser, co-CEO and co-founder of the debt-management site Achieve.
“Particularly consumers who already were dealing with credit card debt. From our own studies, we know that 45% of Americans with student loan debt feel extremely or very stressed about resuming their payments. More than a quarter of student loan borrowers say the resumption of federal student loan payments will likely require them to take on new debt to manage their personal finances. As a result, many of these consumers will likely be delaying major life plans and milestones.”
Whether they have student loans or not, people are finding ways to cope.
“This situation has led to a significant shift in their financial behavior, with many prioritizing essential spending and reducing discretionary expenses like entertainment, luxury items, and non-essential travel,” said Kilday.
“The impact is twofold: it’s causing a heightened sense of financial awareness and a need for more robust budgeting and financial planning strategies to maintain financial stability amidst these challenging economic conditions.”
