Inflation is a term we hear being used in the media more than ever, thanks to the current global credit crunch and economic crisis, but what is it and why should we care?
In short, inflation refers to the price increase of basic everyday items, which is measured by economists in the form of an ‘average’ shopping basket. It includes a range of popular everyday items including food, clothes, gadgets and so forth.
Over time, that combined basket price increases. That then puts pressure on household economies, meaning that they have to spend more on the basic living items at times when their salaries and incomes may not be rising.
It’s not just the dreaded prospect of inflation that has consumers worried. Record levels of personal debt, be they from expensive home loans, bad credit credit cards, unpaid and escalating debts and store cards, all combine into a toxic and worrying mess.
For those whose salaries won’t rise, the cost of a basket of food is now effectively taking up more of their monthly income than it used to. It’s comparatively more expensive every time inflation rises.
Traditionally, the government uses interest rates to manage inflation. High interest rates encourage saving and decrease spending. Increasing interest rates is an effective way of lowering inflation. However the government can’t risk putting up interest rates – currently at historic lows – for fear of further destabilizing the economy.
Households and businesses are so stretched with debt from issues like sub-prime lending and credit cards, that burdening them with increased interest rates – and base rate insreases onto lender cost of finances – would lead to greater bankruptcies and prevent the fragile signs of economic recovery.
So, what can a family do to lessen the impact of soaring inflation on their weekly shop? Well luckily, there are practical and simple measures to take.
Firstly, start budgeting. Review those receipts and keep a spending diary. If inflation rises by 5%, you need to economise by at least that much to maintain equilibrium.
Receipt reviewing usually throws up surprises. Little treats and impulse buys here and there, or small items you forgot about, or bought on the fly.
Start shopping only with a shopping list, after you’ve eaten – research shows that hunger increases shopping amounts. Avoid being tempted by offers and brand products. Buy what you need.
Buy basics – drop a brand level – so from premium items, to regular branded and from those to value items. Buy items to cook from scratch. Learn to cook, buy raw ingredients in bulk and you’ll save a fortune compared to ready made and convenience items.
Plan ahead to use what’s in your fridge. Many American households throw away hundreds of dollars of food every year. Make meal plans, waste nothing.
For clothes – extend their life by taking care of them. Go thrift and vintage – ignore those designer labels until you’re debt free. Organise games swaps for kids with friends and their children. Have clothing swap parties. Brew your own beer, grow your own veg – the list is endless.
With a little forward planning and savvy consumer decision making, you can beat inflation’s effects on your shopping basket, have fun and gain a healthier and more conscious way of living that’s ultimately more satisfying than the old ‘blind consumerism’.