High inflation is still squeezing Americans' budgets

Inflation may be gradually cooling, but the average American is still shelling out a lot more money for everyday necessities. 

The typical U.S. household needed to pay $213 more a month in January to purchase the same goods and services it did one year ago because of still-high inflation, according to new calculations from Moody's Analytics chief economist Mark Zandi. 

Americans are paying on average $605 more each month compared with the same time two years ago and $1,019 more compared with three years ago, before the inflation crisis began. 

The analysis suggests that while inflation has fallen from the highs of mid-2022, many families have yet to see material relief.

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"Inflation is generally moving in the right direction… But it’s important to remember that a lower inflation rate does not mean that prices of most things are falling," said Lisa Sturtevant, Bright MLS chief economist. "Rather, it simply means that prices are rising more slowly. Consumers are still feeling the pinch of higher prices for the things they buy most often."

The Labor Department said Tuesday that the consumer price index, a broad measure of the price of everyday goods including gasoline, groceries and rent, rose 0.3% in January from the previous month. Prices climbed 3.1% from the same time last year. Both of those figures came in higher than the 0.2% monthly increase and 2.9% headline figure forecast by Refinitiv economists.

However, when compared with January 2021, shortly before the inflation crisis began, prices remain up a stunning 17.97%.

Inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations. 

The consumer price index is still running well above the typical pre-pandemic rate, and the cost of necessities like food, gasoline, rent and child care remain far more expensive than they were just one year ago.

Housing costs were the biggest driver of inflation last month. Rent costs rose 0.6% for the month and are up 6.1% from the same time last year. Rising rents are concerning because higher housing costs most directly and acutely affect household budgets.

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Other price gains also proved persistent in January. Food prices, a visceral reminder of inflation for many Americans, rose 0.4% over the course of the month. Grocery costs also rose 0.4% last month and are up 1.2% compared with the same time last year.

The price of both health insurance and auto insurance also jumped in January, rising 1.4% over the course of the month. When compared with one year ago, auto insurance prices are up a stunning 20.6%.

"Overall inflation continues to grind lower, but the drop in core inflation virtually ground to a halt last month, mainly because of shelter prices," said Robert Frick, corporate economist with the Navy Federal Credit Union. "Other service costs remain stubbornly strong, while the food price increases are particularly painful. Breaking the 3% level is proving tougher than expected."

As they spend more on everyday goods, Americans are burning through their savings and are increasingly turning to credit cards to cover those basic expenses.

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Credit card debt surged to a new record high at the end of December, according to recent New York Federal Reserve data.

In the three-month period from October to December, total credit card debt rose to $1.13 trillion, an increase of $50 billion, or 4.6% from the previous quarter, according to the report. It marks the highest level on record in Fed data dating back to 2003 and the 10th consecutive annual increase.