Consumer prices rising at historic pace: What it means for your personal finances

Risks of inflation are rising and consumer prices increased at their highest rate in more than a decade, driven by increasing auto prices. (iStock)

Consumer prices increased in May, surging 5% year-over-year before seasonal adjustment – the highest annual growth since August 2008 when prices rose 5.4% annually, according to the latest Consumer Price Index from the U.S. Bureau of Labor Statistics. The surge marked the highest rate of increase in nearly 13 years and was driven by pent-up demand from the COVID-19 pandemic.

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Rising prices overall mean basic necessities like food or transportation are becoming more expensive. Americans who put off buying a car during the pandemic are now venturing out more regularly and in need of a vehicle – only to find that they could possibly be priced out of the market.

The consumer spending increase was heavily driven by the sharp rise in the index for used cars and trucks, which increased 7.3% annually in May, the report showed. This comes as no surprise, as consumer credit in April increased at a seasonally adjusted annual rate of 5.3% or by $18.6 billion, driven by an increase in auto loans, according to the Federal Reserve's latest report.

High demand as the economy reopens, low supply shocks and rising inflation are combining to drive a spike in auto prices and auto-lending volumes. Autos accounted for about 30% of all consumer spending items in May, while the food index increased 0.4%.

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But, with rising prices comes a risk of higher inflation rates. Median year-ahead inflation expectations rose to an annual inflation rate of 4% in May, up from the previous 3.4% in April, according to the latest Survey of Consumer Expectations from the Federal Reserve Bank of New York. This marks the seventh consecutive monthly increase in future inflation expectations and hits an all-new survey high.

If inflation surges, the Federal Reserve may consider raising interest rates. Currently, the Fed does not plan on raising interest rates until at least 2022, but Treasury Secretary Janet Yellen recently remarked that an increase in interest rates may be necessary in order to keep the economy from overheating if future inflation continues to be high.

This could mean options like refinancing your home loan, auto loan or student loan are off the table. Higher interest rates could also make your monthly payments increase if you decide to buy a home or a car.

For the real estate market, expectations that home prices will rise in the year ahead increased by 0.7 percentage points to 6.2%, significantly higher than the 2020 average of 2.3%. It marked the third consecutive month with a new series high, according to the consumer expectations survey.

With prices and interest rates increasing at the same time, inflation will heat up. Monthly payments on cars and home loans will become more expensive, and Americans could struggle to keep up. If you are interested in taking out a home loan before the effects of inflation cause home prices and interest rates rise, check out Credible to compare multiple mortgage lenders and rates at once.


Supply constraints and annual inflation are resulting in price increases for cars, real estate and more. Though many Americans believe prices will continue to rise, their job market perspectives are more optimistic. Jobless claims are expected to decrease and the percentage of those who said unemployment will rise by next year hit a record low.

Additionally, median earnings one year from now are expected to increase, the Fed’s survey showed.

If you're interested in taking out a loan to save money and lower your payment before interest rates and prices increase further, contact Credible to talk to a loan expert and get all of your questions answered.

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