January’s Inflation Shows Essential Expenses Erode Consumers’ Purchasing Power

It’s not just about the eggs.

Consumers were already feeling the pinch of higher inflation well before the January data on the Consumer Price Index was released by the Bureau of Labor Statistics on Wednesday (Feb. 12). And yes, eggs were a standout here — a poster child for inflation as the CPI hit the 3% year-over-year mark for the first time since June.

The CPI was up 0.5% for the month. It’s worth noting that several components of essential spending — non-variable in nature — are getting more expensive. As such, consumers cannot just depend on food prices coming down to soothe the pinch to the household budget and individuals’ wallets.

The pinch strains discretionary spending, which has a binary outcome: Either consumers pull back on spending, or they use credit and other lending products to help keep spending apace.

But as interest rates increase, making everything from mortgage debt to credit cards more expensive (and the paydown of that debt more financially onerous), it gets harder to keep the discretionary spending aloft. Car insurance is 11.8% more expensive than it was last year, so the cost of getting around is higher as well — no matter if one’s ferrying the kids to school or going out for groceries.

By Category

The chart below shows the upward pace of the overall CPI.

The shelter index rose 0.4%, accounting for nearly 30% of the monthly increase, with rent and owners’ equivalent rent both increasing 0.3%. As we noted above, the cost of shelter is fixed, whether it’s a mortgage or rent (though the latter can change depending on lease terms).

The food index also rose 0.4%, with food at home increasing 0.5% and food away from home up 0.2%. Over the last 12 months, the food at home index rose 1.9%, while food away from home increased 3.4%. The meats, poultry, fish, and eggs index rose 6.1% year-over-year, driven by a 53% increase in egg prices.

Egg and energy prices — and food, too — are variable. They move up and down, and we must hope that the bird flu will be a one-off event, mercifully short lived.

The lone decline in the CPI categories tracked, at least for the month, was in the apparel segment, which slipped 1.4% in the month. With all the other inflationary pressures in place, one wonders whether consumers will notice that much.

PYMNTS Intelligence noted that real average hourly earnings were unchanged from December to January, as a 0.5% increase in nominal wages was offset by that 0.5% rise in inflation. Real average weekly earnings declined 0.3% in January due to the unchanged hourly earnings and a 0.3% drop in the average workweek.

There’s a disproportionate impact as consumers use credit to help supplement the lower purchasing power of their (real) wages. As PYMNTS Intelligence has found, financially struggling consumers — cardholders living paycheck to paycheck with issues paying bills — have been increasing their credit card balances. They’re carrying over $7,000 on their cards, on average, far more than the average $5,000 debt load seen across our whole sample.

As many as 40% of struggling consumers are regularly hitting their credit card limits, so as inflation continues to climb, the ability to handle those price increases (via cards) remains uncertain at best, and yet another financial pressure point at worst.