How inflation could affect borrowing, saving and even volunteering

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Inflation obviously involves spending challenges. Rising prices mean consumers may have to shop more cautiously, cut back on purchases and face higher bills for food, housing, gas, appliances, vacations and more. purchases.

With US inflation now running at an annual rate of 8.6%, a four-decade high, the subject has become more urgent.

Most economists expect inflation – which has already weighed on consumer budgets and rapidly changed spending habits – to persist. The national average for a gallon of regular unleaded is expected to reach at least $6 this summer.

Rising inflation can also affect your borrowing, saving and even volunteering habits. Here are some of the less obvious ways some people feel.

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Volunteers feel the pinch

Thousands of nonprofit groups rely on volunteers for all kinds of help, but higher inflation — specifically, soaring gas prices — is taking its toll.

A Scottsdale-based nonprofit, Waste Not, arranges for the delivery of unused or excess prepared food from caterers and restaurants to people who need help. The group relies on volunteers using their own cars and trucks to pick up food from donors and deliver it to other nonprofits for distribution to the hungry in and around the Phoenix metro area.

But as gas prices have risen, volunteer help or engagement has plummeted. Volunteer drivers accepted 40% fewer food pickup assignments in April compared to a year earlier, said Lori Calhoun, communications and engagement manager for Waste Not. In many cases, the nonprofit found emergency drivers, but some of the food was wasted, she said.

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The volunteers don’t get much help from the government either. People who use their vehicle in the service of charities can deduct mileage costs on their tax return, but this relief is limited. Volunteers can use this tax relief if they itemize the deductions. However, most taxpayers do not itemize, opting instead for the standard deduction.

Also, the volunteer deduction is only 14 cents per mile – a rate that hasn’t budged in over a decade and won’t change any time soon. This is well below the deductible rate for business use of a personal vehicle of 58.5 cents per mile which will drop to 62.5 cents on July 1. It also tracks the 18 cents a mile you can deduct if you use your car for medical purposes (and certain moves). ) purposes. This drops to 22 cents on July 1.

Live closer to the edge

Even before this latest inflationary burst, millions of Americans were getting by. Rising prices for gas, housing, groceries and more have made it harder for people to build up a cushion in case of an emergency.

Many consumers said they would struggle to cope with a surprise $1,000 expense in cash or in a savings or checking account, according to a new survey from Freedom Financial Network, which has a large operation to Temple. Only 28% of respondents said they could afford a big unexpected expense from an emergency savings account. Other common responses include putting the expense on a credit card (32%) and borrowing from family or friends (18%).

Other options included taking out a personal loan, selling fundraising items, cutting costs, and taking on gig work or other extra work. Some people cited several options.

Financial advisers generally recommend building an emergency fund capable of covering three to six months of living expenses. In an inflationary environment, saving even more money might be wise.

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No more credit cards

Many Americans appear to be changing their credit card usage in response to higher inflation, in part to manage higher spending.

Due to inflation, 32% of respondents in a recent NerdWallet poll said they had used a card in the past year to pay for essential purchases, but had yet to pay off their debt. Another 26% relied on cards to make essential purchases between paychecks and 25% said they redeemed card rewards to pay for essential purchases due to inflation. Around 1,600 people were interviewed.

Other ways people have changed their behaviors include taking out a loan from a credit card company, opening a new card account, or taking advantage of balance transfer offers. . The latter can give you a year or more of interest-free use, but applicants generally don’t qualify unless they have good or excellent credit, says NerdWallet card expert Sara Rathner.

Times of rising inflation and rising interest rates, like now, can be good times to evaluate your credit card features and make changes if you can find better deals. These features include interest rates, fees, and rewards.

“Credit card interest is variable, not fixed, so if interest rates go up, your debt becomes even more expensive,” Rathner noted.

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Tipping takes a slight inflation hit

Americans apparently don’t tip as much as they used to, and inflation may be partly to blame. Around 73% of sit-down restaurant customers said they always tip servers, according to a new survey from CreditCards.com, but that’s down from 75% in a similar survey last year and 77 % in 2019.

“Inflation reduces consumers’ purchasing power,” said Ted Rossman, principal analyst at CreditCards.com. Additionally, “a tight labor market has left many service industry companies understaffed and struggling to deliver top-notch customer experiences.”

Compared to 73% of respondents in the last survey who said they always tip, 23% said they tip sometimes or most of the time, and 4% said they never tip.

Baby boomers and Gen Xers generally report tipping more often than young adults. Women said they tipped more than men — 78% to 68%. Additionally, wealthier people said they tipped more often.

Between 2019 and 2022, CreditCards.com said its surveys showed slightly fewer respondents tipping food delivery people, taxi drivers and baristas, but slightly more people tipping hairdressers and barbers.

As a general rule, CreditCards.com recommends tips of 15% to 20% for restaurant servers. The report offers further suggestions for advice in different situations.

Quantity control becomes critical

Grocery prices continue to rise and many suppliers have responded by reducing package sizes. The indirect pass-through of price increases in this way is known as shrinkage, and it appears to be accelerating.

Product makers “know that most shoppers are unaware of net weight and therefore less likely to notice the change,” said Edgar Dworsky, who as the founder of Consumer World has been tracking downsizing for decades. decades.

Recent examples of downsizing he cited include Angel Soft toilet paper, Post Honey Bunches of Oats cereal, Kleenex facial tissue, Miracle-Gro plant food, Quaker Life cereal, dog food Pedigree, Dawn dishwashing liquid and Arm & Hammer detergent.

Dworsky and the Consumer Federation of America offer a variety of tips for dealing with shrinkage, including: focus on the unit price of food (such as price per ounce), replace generics with store brands, stock up on items when prices are low, use cell phone apps for quick discounts and browse weekly ads before you hit the stores.

Prices for food eaten at home jumped 10.1% in the 12 months to May, outpacing the country’s headline inflation rate of 8.6%.

Contact the reporter at [email protected].

Contributor: Medora Lee