CPI Surges to 40-Year High: Understanding Inflation's Impact on Consumers

Inflation isn't slowing down. How much more can consumers take?

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Key points

• The Consumer Price Index rose 7.9% on an annual basis in February.
• Gas, groceries, and shelter were the biggest contributors to that gain.

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It's no secret that U.S. consumers have been reeling from the impact of inflation since mid-2021. But February's data indicates that we shouldn't expect living costs to come down anytime soon.

Last month, the Consumer Price Index (CPI), which measures changes in the cost of consumer goods, rose 7.9% on an annual basis. That represents the highest level of inflation since January 1982.

What's hurting consumers the most?

There were a few specific expense categories that saw steep increases in February. Overall food prices rose 1% from the previous month, while food at home (in other words, groceries) rose 1.4%. Those are the fastest monthly gains we've seen since April 2020.

Energy costs, including gas, were also staggering, rising 3.5% from the month before and accounting for about one-third of the overall CPI gain. Shelter costs also rose 0.5% from the month prior.

Wages aren't keeping up

While wages are up 5.1% from a year ago, they haven't risen at a fast enough pace to keep up with inflation. Workers are actually losing buying power despite seeing a bump in their pay. All told, as of February, workers saw a 2.6% decline in inflation-adjusted earnings.

How to cope with rampant inflation

Many people are struggling to make ends meet in light of higher living costs. If you're having trouble paying your bills, it's important to do what you can to avoid landing in debt.

First, rework your budget and aim to reduce or even eliminate expense categories that aren't essential. That could mean cutting cable for a while, or limiting social activities to outings that don't cost you anything.

Next, assess your savings. If you have a decent cushion in the bank and need to dip in to the tune of $100 or so a month to keep up with higher living costs, that's alright for a short-term fix.

If you don't like the idea of having to raid your savings to pay everyday bills, or you don't have savings to tap, then boosting your income with a second job is an option worth considering. There are many gigs that allow you to earn money at your own pace and on your own schedule, so it's worth seeing if you can give your income enough of a bump to make your current bills manageable.

Be strategic with windfalls. If you're getting a pile of cash back from the IRS this spring, rather than spend it, sock it away in the bank so you can dip in as needed if higher living costs persist.

Finally, do what you can to spend less on essentials. That could mean carpooling to work with colleagues to save money on gas, or planning out meals more strategically to save money at the supermarket. You might also consider buying certain household staples in bulk if doing so is feasible -- meaning, you have space to store things.

Unfortunately, rampant inflation could be with us for quite some time. It's important to gear up for that possibility -- and take steps to protect yourself in light of it.