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Inflation Relief in Sight: Navigating High Prices and Interest Rates with Smart Financial Moves

Inflation is gradually coming under control. 

It may not feel like it because prices have risen so much in the past few years that many people are still feeling the pinch of higher prices.  Nevertheless, the economy is cooling off.  Inflation is a little lower, according to the most recent CPI number, which was flat for the month.  Retail sales are also slowing as of the last report.  The job market is still strong, but wage gains are not contributing to inflation to the same degree that they were six months ago.  Core PCE, the Federal Reserve’s favorite inflation gauge is running still at about 2.8%, as it was when we last wrote about inflation in March.  That rate has been sticky, but it is getting closer to the target of 2%, which is considered stable for economic growth.  The Fed says they will keep track of the inflation numbers as they consider when to begin lowering interest rates. 


Why is this important? 

If you are a borrower, interest rates are painfully high, and they are slower to decline than many economists predicted.  It affects all parts of the economy, particularly areas that require a lot of money, such as real estate.  People can’t sell their houses because they have low rates on their mortgages from years prior.  Now if they move, their new mortgage rate will be double their old rate, as will their monthly payment.  That means there are few sellers.  Even though buyers are fewer than in the past, there are far fewer sellers, so demand is higher than supply, which keeps housing prices high.  For buyers, it means they have both high mortgage rates and high housing prices.  These rates, as well as rates on revolving credit, such as credit cards, will eventually begin to decline, but more slowly than was expected earlier this year.   


What is a person to do? 

Our advice is to be patient.  Keep reducing debt, if you have it.  Especially, try to pay off any high-rate debt, such as credit cards.  If you have paid off your debt and have cash, make sure you keep cash invested in short-term money market fund or other account that generates some income.  As long as you have a few months of savings that you can tap in an emergency, make sure that you take advantage of all the tax advantaged savings programs, such as IRA and 401 K plans.  It is always best to set these plans up as automatic deductions from your paycheck.  UOU, you owe yourself before you owe anyone else! 

 

 



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