What it means for your personal finances

Inflation risks are increasing and consumer prices have risen to their highest rate in over a decade, driven by rising car prices. (iStock)

Consumer prices rose in May, jumping 5% year-on-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 United States Bureau of Labor Statistics. The rise 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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The overall rise in prices means that basic necessities such as food or transport are becoming more expensive. Americans who postponed buying a car during the pandemic now venture out more regularly and need a vehicle – only to find out they could possibly be off the market.

The increase in consumer spending was heavily boosted by a sharp rise in the used cars and trucks index, which rose 7.3% annually in May, according to the report. This is not surprising, as consumer credit in April grew at a seasonally adjusted annual rate of 5.3% or $ 18.6 billion, driven by an increase in auto loans, according to the U.S. Federal Reserve. last report.

Strong demand as the economy reopens, weak supply shocks and rising inflation combine to drive up prices and higher volumes of auto loans. Automobiles accounted for about 30% of all consumer spending in May, while the food index rose 0.4%.

If you’re looking to take out a car loan but need to find ways to make it more affordable, consider finding ways to lower your car insurance premiums. With Credible you can compare multiple auto insurance providers immediately and choose the right plan for you.


But, with the rise in prices, there is a risk of higher inflation rates. Median inflation expectations for the coming year reached an annual inflation rate of 4% in May, down from 3.4% in April, according to the latest Survey of consumer expectations of the Federal Reserve Bank of New York. This is the seventh consecutive monthly increase in expectations of future inflation and hits a whole new survey high.

If inflation spikes, the Federal Reserve may consider raising interest rates. Currently, the Fed does not plan to raise interest rates until at least 2022, but Treasury Secretary Janet Yellen recently noted that an interest rate hike may be necessary to avoid overheating the economy if future inflation remains high.

This could mean that options like refinancing your home loan, car loan, or student loan are not possible. Higher interest rates could also increase your monthly payments if you decide to buy a house or a car.

For the real estate market, expectations that house prices will rise in the coming year rose 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 record, according to the Consumer Expectations Survey.

With a simultaneous increase in prices and interest rates, inflation will skyrocket. Monthly payments on cars and home loans will become more expensive, and Americans may find it difficult to keep up. If you want to take out a home loan before the effects of inflation cause house prices and interest rates to rise, check out Credible to compare several mortgage lenders and rates at the same time.


Supply constraints and annual inflation are driving price increases for cars, real estate and more. Although many Americans believe prices will continue to rise, their outlook for the job market is more optimistic. Unemployment claims are expected to decline and the percentage of those who said unemployment will rise by next year is at an all time high.

In addition, median profits within a year are expected to increase, according to the Fed’s survey.

If you want to take out a loan to save money and reduce your payments before interest rates and prices rise further, contact Credible to speak to a credit expert and get all of your questions answered.

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