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It’s a hard figure to pinpoint, but here’s how inflation might play out.
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If you’ve been struggling with sky-high living costs since the start of 2022 (or even before), you’re in good company. Inflation ran wild last year, and as a result, many consumers had no choice but to raid their savings accounts and rack up scores of debt on their credit cards just to do things like put food on the table and keep the lights on.
And we’re definitely not done with rampant inflation. As of December, the Consumer Price Index (CPI), which measures changes in the cost of consumer goods, was up 6.5% on an annual basis. Now that’s a vast improvement from June’s CPI reading, which saw inflation peaking at 9.1%. But for context, a rate of inflation around the 2% mark is considered a more “normal” one. And we’re clearly worlds away from that point.
But will inflation continue to dip in 2023? There’s a good chance it will. The question is, how low will it go?
A positive trend
Since peaking in mid-2022, the pace of inflation has slowly but surely been cooling. And so there’s reason to believe that will continue into 2023.
In fact, the Federal Reserve is doing its part to make sure inflation levels continue to drop. The central bank has been raising interest rates since early 2022 in an effort to encourage a pullback in consumer spending.
These days, it costs more money to borrow money in just about every shape or form, whether it’s a credit card balance, a personal loan, or an auto loan. And if consumer spending drops to a modest degree, the Fed might get the best of all worlds — lower inflation without driving the economy into a recession.
But so far, consumer spending has not declined notably on the heels of the Fed’s recent interest rate hikes. So there’s reason to believe we might avoid a 2023 recession after all.
As far as inflation goes, without a crystal ball, we can’t say how steeply it will drop over the course of the next 11 months. But could we see inflation dip into the 4% range this year? That’s certainly within the realm of possibility. And if that were to happen, many consumers would no doubt enjoy their fair share of relief.
How to cope with lingering inflation
It may be quite some time until inflation levels drop back down into the “normal” range. So a good bet until then is to be very careful with your spending. Try to limit non-essential purchases, and make sure they only comprise a small portion of your total spending so you don’t risk falling behind on non-negotiable bills like your rent or mortgage payments.
At the same time, you may want to consider picking up a side gig if you haven’t explored that option already. The U.S. economy is in solid shape these days, so you may find that it’s pretty easy to get yourself a second job. And that extra income could be enough to get you through many months of lingering inflation without subjecting yourself to undue stress, or worse yet, costly debt.
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