As America gears up for its 250th anniversary this July, plans for the usual red, white, and blue spectacles are in full swing. Tall ships will sail into New York Harbor, and politicians are polishing soaring speeches to celebrate two and a half centuries of the American experiment. But a quick peek behind the fireworks reveals a striking bit of historical deja vu.

Fifty years ago, the nation marked its Bicentennial while wrestling with a very specific, stubborn set of economic headaches. Fast forward to 2026, and we are blowing out the candles next to the same triad: sticky inflation, pain at the gas pump, and a looming deadline to fix Social Security.

The real takeaway of the Semiquincentennial isn't that we are stuck in a grim rerun — it’s that these structural hurdles are uniquely resilient. As we toast to 250 years, the best way to celebrate American exceptionalism might be to finally solve the leftover homework of the 1970s.

1. Social Security insolvency — again

While Americans celebrated the Bicentennial, a flawed statutory formula enacted in 1972 to implement the Cost of Living Adjustments — indexing of benefits to protect beneficiaries from the effects of inflation — was quietly draining the Social Security Trust Fund. This has become known as the “double indexing” or “decoupling” problem. Rather than fixing the core demographic imbalance, Congress passed a minor patch in 1977.

The historic 1983 legislative rescue — which delayed cost-of-living adjustments, introduced benefit taxation, and raised the retirement age — was explicitly designed to buy 40 to 50 years of breathing room. In 2026, the borrowing time has almost run out at the same time that our population is aging.

There are approximately 62 million adults age 65 and older living in the United States, representing about 18% of the total population — a steep increase over 1976 or 1983. In 1976, the number of people 65 and older was 22.95 million or 10.4% of the population. In 1983, that number had climbed to 27.4 million, or 11.5% of the total population.

The public is less than confident that those in charge will resolve the problems without cutting benefits. Almost 70% of the adults aged 45 and older surveyed by PlanGap are not confident that the government will solve the Social Security funding challenge without reducing benefits. While 83% say that Social Security will play a major or moderate role in their retirement plan, 68% are concerned either "a great deal" or "a lot" that they won't receive the benefits that they are entitled to.

• The 1976 pre-crisis: In 1976, policymakers were concerned because a flawed benefit-indexing formula passed in 1972 was accidentally over-indexing benefits for inflation, causing the trust funds to drain faster than expected. Congress tried a temporary patch in 1977, but did not address the deeper structural demographic issues. By 1982, the Trustees warned that the system was months away from insolvency.
• The 1983 "Salvation": Enter the bipartisan Greenspan Commission. The resulting 1983 Amendments "saved" the system through a painful compromise: delaying the Cost-of-Living Adjustment (COLA), gradually raising the full retirement age (FRA) from 65 to 67, and introducing taxation on Social Security benefits for high earners. It bought the system exactly what it promised: about 40 to 50 years of breathing room.
• The 2026 reality: That 1983 clock has officially run out. We are right back in the 1976 pressure cooker. The 2026 Social Security Trustees Report currently projects that the Old-Age and Survivors Insurance (OASI) Trust Fund will hit depletion in 2032. If Congress waits until the final months to act — just like they did in 1983 — the required fixes (payroll tax hikes or benefit cuts) will have to surpass the 1983 adjustments because the demographic wave of retiring baby boomers is already fully cresting.

2. Inflation: The ghost of stagflation

The Bicentennial took place during a short-lived economic exhale. Inflation had cooled to 5.8% from its 1974 double-digit peak of 11.1%. From that point on, however, inflation rebounded, climbing every year until it reached a crushing 13.5% by 1980.

Today, the U.S. economy faces a familiar pattern. The COVID-era inflation surge peaked at an annual rate of 8.0% in 2022 — a big departure from the previous decade (2010-2020), when annual inflation averaged just 1.77%.

Now, after waking up from a post-pandemic optimism, families are confronting a sticky, resilient 4.2% inflation rate this May, proving price stability is far harder to sustain than Washington admits. Even if inflation rates fluctuate, the baked-in price increases from past inflation persist and still sting. Affordability issues won't be cured solely by a falling inflation rate.

• 1976: The mid-1970s were the cradle of modern "stagflation." While CPI had briefly dipped from its 1974 double-digit peaks down to around 5.8% in 1976, it was a false sense of security. The underlying structural drivers were left unaddressed, setting the stage for the massive second inflation wave that topped out at over 13% by 1980.
• 2026: We are living through a strikingly similar echo. After a massive post-pandemic inflation spike that peaked in 2022, prices began to moderate, giving everyone hope of a "soft landing." However, fresh energy and geopolitical shocks have driven inflation up 4.2% year-over-year in May 2026. The realization is sinking in that inflation is sticky, structural, and deeply resilient — just like it was in 1976.

3. The price of gas: geopolitical shocks and the $4 pump

By 1976, the gas lines of the 1973-74 OPEC embargo had vanished, but the era of permanently cheap fuel was over. Energy costs became an erratic wildcard that weighed on consumer confidence and squeezed household margins.

Fifty years later, the vulnerability remains unchanged. With current geopolitical friction pushing the national average past $4 a gallon, the modern consumer is learning that decades of political rhetoric cannot insulate a local gas station from overseas supply shocks.

Gas prices are dropping, but the return to pre-war levels will be slow. Continued tensions with the Iranian government, combined with low inventories and restocking demands, are expected to keep prices high for the foreseeable future.

• 1976: The country was still reeling from the psychological and economic trauma of the 1973 OPEC oil embargo. Even though the recent gas shortages are in the past, the era of permanently cheap fuel is dead. Energy costs became a volatile wildcard that dictated consumer confidence and corporate margins.
• 2026: History is repeating itself at the pump. The recent oil shock triggered by the war with Iran has driven the national average for gasoline past $4 a gallon for the first time in years. Just like in 1976, energy-driven inflation is eating directly into household budgets, proving that 50 years later, the U.S. economy remains highly vulnerable to overseas conflicts.

The present is too close to history

Every national milestone invites a backward glance, but the truest mirror for America in 2026 isn't 1776 — it’s 1976. When the nation marked its 200th birthday, the hangover of stagflation and energy shocks had left voters deeply unsettled about the future. It was also the exact moment the structural fuses on our major entitlement programs began to smoke.

Seven years later, the bipartisan 1983 Greenspan Commission enacted fixes to try to save Social Security with a cocktail of tax hikes and a delayed retirement age. It promised roughly 40 years of breathing room. Today, as we celebrate America 250, that runway has officially ended and the Social Security trust fund is projected to lapse into insolvency in 2032. The parallels between the Bicentennial and the Semiquincentennial are too close to ignore, and this time, there is nothing to celebrate about this history repeating itself.

More on America's 250th Birthday

• America is Turning 250 — But We Didn't Get Serious About Saving for Retirement Until 50 Years Ago
• America's Cost of Living at 200 vs 250: How Affordable is American Life Now?
• How Has Retirement Changed in the Last 50 Years? Take Our Quiz
• 9 Historic Sites to Visit With Your Grandkids for America's 250
• Financial Advice From America's Founding Fathers
• Which Presidents Are on the Social Security Payroll?

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• When Will Social Security Run Out of Money? And Medicare?
• Presidents and Social Security: How Presidents Have Impacted America's First Social Insurance Policy
• How the World is Absorbing the 2026 Energy Crisis
• 10 Things You Should Know About Oil and Prices

If your weekend barbecue shopping trip feels more expensive this year, you’re not alone.

The biggest culprit? High beef prices, which are up about 14% year over year, according to the Bureau of Labor Statistics. This cost is sometimes referred to as the "burger tax."

This burger sticker shock comes as shoppers across the U.S. have been dealing with higher grocery bills for years, especially when buying staples like meat, eggs, and dairy products.

And if you live in a state that still taxes groceries, the number on your receipt is even higher. Here's more of what you need to know.

Why is the price of beef so high?

While overall grocery prices are up 3.1% over last year due to inflation, the long-term impact is significant. Food prices at home have jumped 27% over the last five years.

And…the United States Department of Agriculture (USDA) expects food-at-home prices to continue rising in 2026, with beef among the categories projected to see some of the strongest price growth.

As a result, feeding 10 guests at a backyard barbecue could now cost roughly $15 (or more) per person. Ground beef, up 70% since 2021 and now reportedly averaging about $6.90 a pound, is responsible for much of that increase.

Declining cattle numbers, high feed costs, drought, and consistent beef consumption in the U.S. all contribute to soaring prices.

Grocery tax by state

If rising food prices weren't enough, residents in 13 states face an additional expense because some states continue to tax groceries.

In some cases, that means full statewide tax; in others, reduced rates or hybrid systems that still add a charge at checkout.

For example, Mississippi, Idaho, South Dakota, and Hawaii apply full or near-full state tax rates to grocery purchases. But over the last few years, several states (Oklahoma and Kansas are just two) have eliminated their state-level grocery taxes (though local municipal taxes still apply at checkout in many areas).

Below is what that looks like in dollar terms for a typical cookout basket.

Note: Prior estimates from the Wells Fargo Agri-Food Institute put the cost of a typical 10-person backyard barbecue at about $130. With ground beef prices up roughly 14% over the past year, a comparable cookout basket today would likely be closer to $150, or more, depending on menu choices and substitutions.

States with Statewide Grocery Tax This Year (Assumes a $150 grocery basket for a 10-person cookout)

*Note: Additional city, county, or transit district taxes may apply on top of these base numbers.

** Hawaii imposes a general excise tax rather than a traditional sales tax.

Here's where things stand in the remaining states that still technically tax groceries but have eliminated or reduced state-level tax.

Oklahoma: The Sooner State repealed its 4.5% state grocery tax in 2024, though local sales taxes may still apply.

Kansas: Kansas fully phased out its state grocery tax last year after gradually reducing the rate over several years. Local taxes may still be charged on food purchases.

Virginia: Virginia taxes groceries at a reduced rate of 1%, split between state and local governments.

Illinois: Illinois ended its statewide 1% grocery tax as of 2026, but local governments can impose their own grocery taxes, meaning some shoppers still pay tax at checkout.

Arkansas: Arkansas eliminated its state grocery tax in 2025, although some cities and counties continue to levy local taxes on food purchases.

Bottom line: Why some states still tax groceries in 2026

Most states exempt groceries from sales taxes because food is considered a necessity. However, a handful continue to tax groceries at either the full state sales tax rate or a reduced rate.

• Supporters argue that grocery taxes provide a stable source of revenue that helps fund schools, roads and other public services. They also contend that broad-based sales taxes allow states to keep other taxes lower.
• Critics counter that grocery taxes disproportionately affect lower-income households because food purchases consume a larger share of their budgets.

The debate has intensified in recent years as inflation pushed food prices higher, and as a result, several states have reduced or eliminated grocery taxes.

In Alabama, lawmakers have temporarily suspended the 2% state sales tax on most groceries until June 30, to alleviate high food prices, though local sales taxes remain in place. Similarly, as Kiplinger has reported, Illinois and Arkansas have recently eliminated their state-level grocery taxes, while local taxes still apply in some areas.

Notably, some cities are exploring targeted approaches to making food more affordable and accessible. For example, San Francisco's “Affordable Groceries Act” has recently been proposed by District 5 supervisor Bilal Mahmood.

Modeled after Mayor Zohran Mamdani's city-owned grocery store initiative in New York City, the San Francisco bill is designed to support new grocery stores in underserved neighborhoods through an affordable grocery fund and a vacancy tax imposed on large chains that close stores in the city.

Read More

• Food Tax: Which States Still Tax Groceries in 2026?
• 9 No-Income-Tax States Ranked by Cost of Living
• States With the Lowest Sales Taxes

For about 25 years, the valet tip ran on a simple social contract.

• $1 was acceptable
• $2 was considerate
• $5 meant you were really feeling generous

No one debated it. You handed over your keys, got your car back, passed along a crumpled $1 bill and walked away feeling like a decent human being.

Then inflation came for the valet stand.

Now the moment feels strangely stressful. The valet brings your car. You reach into your wallet. There is a lonely $1 bill sitting there, looking like it belongs in a museum exhibit titled "Life Before Inflation." You know $1 used to be fine. But now it feels small. Maybe too small. Maybe a little insulting.

Then you see the $5 bill.

Five dollars feels generous — maybe too generous — but asking for change feels worse. Who wants to say, "Can you break this five?" to the person holding your car keys? You hand over the $5, smile awkwardly and drive away feeling both generous and slightly manipulated.

That tiny moment captures something much bigger: Inflation is not just a rise in prices. It's a reset of expectations.

The price list in your head is out of date.

Economists track inflation through indexes and charts. You and I track it through tiny shocks.

• The grocery bill that used to be $120 and now hovers near $200
• The family restaurant check that quietly crept from $80 to $150
• The home or car insurance renewal that jumps 15% a year
• The tip screen that starts at 18% and only goes higher
• The valet tip that jumped from $1 to $5 in a single awkward decision

Over time, we build a mental price list. A cup of coffee "should" cost a certain amount. A sandwich "should" cost X dollars. A full tank of gas is normally Y dollars. Those numbers become emotional anchors. They tell us what normal looks like.

Inflation breaks those anchors. The numbers in your head fall out of sync with the numbers on the receipt.

That's why inflation doesn't just feel expensive — it feels destabilizing.

When expectations start driving behavior

The Federal Reserve cares deeply about inflation expectations because expectations can become self-fulfilling. When people believe prices will keep rising, they behave differently.

• Workers demand higher wages
• Businesses raise prices earlier and cut discounts
• Consumers buy sooner to "get ahead" of the next increase
• Investors demand higher yields because they don't trust the future buying power of dollars

Inflation stops being just a statistic. It becomes a story people tell themselves about the future.

Once that story takes hold, it doesn't just change how we spend. It changes how we feel about every decision — including something as small as a tip.

Welcome to the guilt economy

Tipping is where inflation collides with social pressure.

Nobody wants to look cheap. Nobody wants to punish a service worker because the price level changed. Nobody wants to be the person who hands over $1 and imagines the valet thinking, "Sir, this is not 2000."

We overcorrect.

We tap the higher tip option because the tablet is staring at us. We give $5 because anything less feels like a moral failure in a $20 world. We call it generosity, but sometimes it's really guilt plus inflation plus a lack of small bills.

This is not an argument against tipping. Service workers often depend on tips, and generosity is a virtue.

The real issue is unconscious generosity — spending driven by confusion, pressure or habit instead of intention.

How to stay intentional when prices jump

Inflation changes prices. Wisdom changes how we respond.

Here are four ways to stay in control when the world feels more expensive than the numbers in your head:

Update your internal price list and budget. Take 15 minutes to list your big recurring costs — groceries, insurance, childcare, dining out — and compare what you think they cost to what they cost now.

Make your budget reflect today, not 2019.

Create "rules" for tipping and small spending. Decide ahead of time: What's your standard tip for valet, coffee shops or delivery? What earns a higher tip?

A simple rule — say, $2 to $3 for basic valet, $5 for great service or bad weather — removes guilt from the moment.

Separate generosity from pressure. Be generous on purpose, not by default. If you tip more, do it because the service was good and it aligns with your values — not because a screen or a line behind you pushed you into it.

Align your saving and investing with inflation reality. Moderate inflation can erode the value of cash sitting on the sidelines. Periods of rising inflation and interest rates can bring volatility to the financial markets.

The stock market can experience more ups and downs, and bonds could offer higher yields. Every market environment creates a set of risks and opportunities.

Take this as a cue to review your asset allocation and rebalance according to your risk profile and time horizon, rather than reacting to headlines.

The goal isn't to fight every price increase. It's to avoid reacting to fear or pressure.

Back at the valet stand

Is $1 still enough for the valet? In many places, probably not. Is $5 too much? Not always.

The better question is: Who is making the decision — you, social pressure or inflation?

The next time the valet brings your car, and you reach into your wallet, pause for a second. If you give $5, do it because it reflects your values and the service provided — not because inflation guilt took the wheel.

Maybe keep a few singles in the car.

Not because the old world is coming back, but because the new one still requires change.

To learn more about making better life and financial choices, you can order Feroz Ansari's upcoming book, The Wisdom and Wealth Solution, at Amazon.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Recent economic reports confirm that the war in Iran, which has caused energy prices to spike, is accelerating inflation. Indeed, the Consumer Price Index (CPI) for May rose at its fastest annual pace in three years.

According to the Bureau of Labor Statistics (BLS), headline inflation was up 0.5% from April to May and 4.2% higher than the year prior. The monthly increase was slower than the 0.6% rise seen in April.

The annual rise signaled an uptick from the 3.8% increase from the month prior and was the highest yearly pace since April 2023. Both figures matched economists' estimates.

Energy costs had the biggest impact on the May CPI report. "The index for energy rose 3.9 percent in May, after rising 3.8 percent in April and 10.9 percent in March. The energy index accounted for over sixty percent of the monthly all items increase," wrote the BLS in its report.

Unless something changes in the Middle East, "gasoline and other fuel prices will continue rising in the coming months," writes David Payne, staff economist and reporter for The Kiplinger Letter, in the Kiplinger inflation outlook. "Food prices will also start rising in the future, as one-third of the world's fertilizer supply is produced in the Persian Gulf region, along with 10% of aluminum, used in everything from jets to soda cans."

Higher inflation will make the Federal Reserve more hesitant to lower interest rates — especially amid signs the labor market is stabilizing. According to CME Group FedWatch, futures traders don't expect any rate cuts at all in 2026. Earlier this year, betting odds were for at least one quarter-point cut.

The Federal Open Market Committee may even consider rate hikes this year, notes Payne. "The Fed generally discounts energy price fluctuations in its deliberations on interest rate policy. But the central bank will also note that 'core' inflation (excluding food and energy) is likely to creep upwards as the year progresses," he explains.

What is the CPI?

"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information that around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."

The two primary measures of CPI are headline, which is the total inflation rate experienced by households, and core CPI, which excludes volatile food and energy prices.

In May, core CPI was up 0.2% month over month, a downshift from April's 0.4% increase and slower than economists expected. Year over year, core inflation was 2.9% higher, slightly faster than the 2.8% increase from the year prior and in line with estimates.

Prices for airfare, medical care and recreation were all higher in May, while costs for new cars, household furnishings and car insurance were lower.

With the May CPI report on the books, we looked at what economists, strategists and other experts on Wall Street have to say about the data. You'll find their insight, edited at times for brevity, below.

What Wall Street is saying about the May CPI report

"While the recent spike in both headline and core inflation is meaningful and a headwind for the economy and more cyclical sectors, tailwinds from the AI investment cycle, potential benefits from the Big Beautiful Bill, and the lagged impact of Fed rate cuts are all still providing meaningful support. If the Iran conflict drags on and inflationary pressures continue to build, there could come a point where that balance shifts, but we don't see that today." - Tim Urbanowicz, Chief Investment Strategist, Innovator ETFs from Goldman Sachs Asset Management

"It's very possible that things wrap up in the Middle East and shipping gets back to normal over the course of the rest of the year, in which case we can see inflation come down over time and the Fed could hold off raising rates, but if things stay as they are currently, then all bets are off. The stock market has been climbing a wall of worry and has been able to rally on stronger earnings and stable interest rates, but a rising rate environment is another thing altogether." - Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management

"With core measures suggesting more limited price increases and much of the upside coming from oil directly (energy) or indirectly (airfares), today's release suggests that inflationary pressures stemming from the oil price shock have remained manageable for the U.S. economy so far. Cooler core inflation is an encouraging sign for investors, suggesting less of a need for the Federal Reserve to raise interest rates if inflationary pressures stay more contained than previously expected. However, continued uncertainty around the prospects for a durable peace deal and a reopening of the Strait of Hormuz are likely to overshadow today’s positive inflation news given the re-escalation of tensions over the past 72 hours." - Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments

"While Wednesday's CPI was in line with expectations, inflation is still elevated and far from the Federal Reserve's 2% target. Once consumer prices rise, it takes time for this trend to reverse. The road back to an inflation rate near the Fed's 2% target will not be immediate is becoming more and more of a fantasy. Rising oil prices are to blame for this inflation, but tariffs are also inflationary and everyday things like food and healthcare costs are reaching unsustainable levels. It's clear that rate cuts are off the table, and while there is chatter about a potential rate hike, we believe it's unlikely that we'll see a rate hike before the midterm elections, and any such hike is likely a year away." - Skyler Weinand, Chief Investment Officer at Regan Capital

"Core prices were in line. The tentative conclusion is that energy is not bleeding into core items. Or at least the leakage is being offset by tariffs passing through. This news should pacify the hawks on the Federal Open Market Committee (FOMC)." - Brad Conger, Chief Investment Officer at Hirtle & Co.

"Today's inflation information does little to resolve the reality that the last mile of inflation has been difficult for the Fed to defeat. The reality is that inflation has been persistently stuck above their 2 percent target for the past few years with little to no progress. The weak labor market has provided the Fed the cover to cut rates despite this reality. With the labor market healing, investors are rightfully pondering if the Fed will have to refocus on actually meeting their inflation mandate." - Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Company

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"Running on Empty" is one of Jackson Browne's most recognizable songs — a 1977 live recording that captured both the energy of the road and the toll it takes over time.

A No. 11 hit on the U.S. Billboard Hot 100 when it was released as a single, and it spent 17 weeks on the chart. Rolling Stone ranked it at No. 496 on its list of "The 500 Greatest Songs of All Time" in 2010.

The song draws on Browne's real-life experiences. He lived close enough to the studio that he figured he could always make it without having to fill his tank.

In 1977, he wrote "Running on Empty" after routinely driving around with his gas gauge hovering near E, a few more miles until empty. Most of the time, he made it. But not always.

That's the thing about running on empty — it works … until it doesn't.

Lately, I've been thinking about how often that same mindset shows up in financial planning.

For more than two decades, we've used a 3% inflation assumption in retirement plans. For years, clients pushed back. From 2010 to 2021, they asked, "Why so high? Inflation hadn't been above 2% in what felt like forever." It seemed conservative, maybe even unnecessary.

Then came the COVID-19 crisis, and layer upon layer of fiscal and monetary stimulus from the federal government and the Federal Reserve Bank. Since 2020, inflation has averaged closer to 4% per year, and prices have risen more than 40% in slightly more than six years.

Now the question has flipped: "Why are you using a number that's so low?"

Same assumption. Completely different reaction. That's the trap. We anchor to what just happened and assume it will continue, even when history tells us otherwise.

But financial planning isn't about the last five years. It's about the next 30. Even if inflation had behaved exactly the way the Federal Reserve intended — right at 2%, prices would still be roughly 27% higher today than they were in early 2020. Instead, they're up more than 40%.

That gap matters. But what matters more is what happens next. In a 20-to-30-year retirement, even a "normal" inflation rate compounds into something much bigger. At 3%, prices double in about 24 years. The life that costs $100,000 today doesn't stay there. It becomes $150,000 … then $175,000 … then $200,000.

Now extend the timeline. We're not just dealing with inflation; we're dealing with longevity. People are living longer, and retirements that used to last 15 to 20 years are now stretching 25 to 30 years or longer.

U.S. life expectancy hit an all-time high of 79 years in 2024, marking a recovery from the sharp declines caused by the COVID-19 pandemic. Standard government projections suggest a modest climb to roughly 82 to 85 years by 2060.

However, emerging medical technologies and AI-driven breakthroughs are leading some experts to forecast more dramatic shifts, with some projections climbing into the high 80s over time, and potentially higher as medical innovation accelerates.

That's more time for inflation to work against you, and more time for a portfolio to either keep pace or fall behind. This is where the real risk lives — not in a bad quarter or a volatile market, but in the slow, almost invisible erosion of purchasing power, especially for portfolios built too heavily on fixed income or fixed-rate sources.

Those dollars don't adjust. They don't grow with inflation. They just sit there, losing ground one year at a time.

When I started my career in 1987 — when high inflation was still fresh in people's minds — we had a term for this. We called it going broke safely.

You weren't experiencing volatility risk in the stock market, yet your financial dollars were slowly eroding, and you were buying fewer eggs, milk and gasoline each passing year because of the insidious creep of inflation.

It's the financial equivalent of watching the fuel gauge drop, telling yourself you'll fill up at the next exit, then the next one, then the next one after that. The road feels smooth. The engine is still running. Nothing feels urgent … until it is. By then, your options are limited.

The problem with running on empty isn't the moment you notice it; it's how long you've been ignoring it.

The goal of planning isn't to predict inflation with precision. We won't. It will be higher than average at times, lower at others. The goal is to use assumptions grounded in history — and build a plan that can absorb variability.

The real danger isn't being off by a percentage point; the real danger is building a plan that works only if conditions stay perfect, because they won't.

"Running on Empty" wasn't really about a gas tank; it was about time, energy and what it costs to keep going without refueling. That's the part that sticks. Retirement planning isn't just a destination — it's a journey that lasts the rest of your life with changing conditions, unpredictable detours and a fuel gauge that doesn't care what you thought would happen.

It only reflects what's happening.

Here's the directive, and it's a simple one. Don't build a plan based on what inflation feels like today. Don't anchor to the last cycle, the last headline or the last few years of data.

As a CFP, I help my clients build a plan that assumes the road will change, because it will. We stress test those plans. We revisit them. We make sure the income and assets meant to support your future can keep up with it.

The most important question isn't whether inflation will matter: It's whether your plan is prepared for it. Because running out of fuel doesn't happen all at once, it happens slowly, quietly over time.

By the time you feel it, you're already miles past the last exit.

Other Lessons From the School of Rock

• A Lesson From the School of Rock (and a Financial Adviser) as the Markets Go Around and Around
• Does the Market Feel Like We Do? It Does Not, and This Is Why That Matters

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You walk into the store and notice your usual product is more expensive again. The shelves aren't empty, and demand doesn't seem any higher.

But prices of certain products don't just move because more people are buying them. They also shift because of costs, policy, currency changes, supply chains and more.

Understanding these forces can help you decide when to buy a product and when to wait or switch to an alternative. Here are the basics.

1. Cost-push inflation

Cost-push inflation happens when the cost of making and delivering a product rises, and companies pass some of that increase along to you. No demand surge needed.

Think about what goes into almost anything you buy: Raw materials, packaging, electricity, wages, insurance, transportation. When any of these jump, the final price often follows.

A clear example is lumber. During 2020-2021, prices surged and swung sharply, pushing up the cost of homes and even small backyard projects. You can see how sharply lumber prices moved in producer price data from the U.S. Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis.

The National Association of Home Builders (NAHB) estimated these spikes added thousands of dollars to the cost of a typical new home. They were driven mostly by supply issues and mill shutdowns, not a sudden jump in local demand.

2. Government policy changes

Rules matter. When regulations like tariffs and taxes change, they can alter the cost of doing business. Companies may need to buy new equipment or pay import fees. So even if shoppers aren't clamoring for more products, prices rise because producing them under the new rules costs more.

Ryan Beattie, director of business development at UK SARMs, sees this firsthand in a highly regulated market. In this space, even small rule changes can mean updating formulas or labels. All of which adds to costs.

"Regulatory shifts don't just change how we operate," Beattie says. "They directly affect costs. Compliance requirements, such as testing standards and import restrictions, can all add layers of expense. Even when customer demand stays steady, those added costs often have to be reflected in pricing."

Tariffs are a good example. When the U.S. imposed Section 232 tariffs on steel and aluminum, downstream industries faced higher input costs that often showed up in the price of finished goods.

3. Currency exchange fluctuations

If a product or key component is imported, exchange rates matter. When the U.S. dollar weakens against another currency, American importers must pay more in dollar terms for the same goods.

Consumer demand may be steady, but shelf prices climb simply because the currency math changed. Economists call this exchange rate pass-through.

Imagine a business importing T-shirts from overseas. If the dollar weakens, each batch suddenly costs more to bring in, even if the order size stays the same. To keep margins steady, the seller often raises prices, even though customer demand hasn't changed.

4. Supply chain disruptions

A single weak link in a supply chain creates a domino effect. Think factory outage, port delays, strikes and shipping backups. Any of these adds time and uncertainty.

Businesses start paying more for workarounds: Emergency sourcing, expedited freight, carrying extra inventory and splitting production across multiple sites.

Gavin Yi, CEO of Yijin Solution, sees this firsthand in global manufacturing and sourcing. When supply chains are disrupted, companies often scramble for alternatives, which quickly drives up costs.

"Supply chain breakdowns create cascading cost increases beyond just shipping delays," Yi explains. "Emergency sourcing, expedited freight and inventory carrying costs add up quickly. When that happens, companies often have no choice but to raise prices to stay afloat."

We've all watched this play out. The Suez Canal blockage in 2021 and pandemic-era bottlenecks sent global container shipping rates soaring.

Drewry's World Container Index reports on shipping costs, and its graphs going back to May 2025 show how fast shipping costs rocketed up and later cooled. Import anything bulky or time-sensitive, and that kind of surge feeds straight into end prices.

5. Technological innovations

New tech like artificial intelligence (AI) can make products better. And more expensive to produce.

Early versions of new technology often rely on pricier components and specialized manufacturing (even R&D). The price you see also helps fund the years of development that brought the product to market.

For instance, a Vertical Lift Module (an automated storage system) can improve efficiency and save space in warehouses. But it comes with upfront costs for advanced engineering, software, testing, and installation. Those added costs often show up in the final price, especially in the early stages before the technology becomes more common.

Rising prices due to tech are apparent in various industries. Pharmaceuticals are a clear case. Drug development takes time and money. Not to mention many failed attempts. The Congressional Budget Office cites how R&D shapes costs and pricing in the drug industry.

5. Future market expectations

Sometimes prices shift because traders are anticipating what will happen, rather than looking at what's happening right now.

In commodity markets, for example, futures prices reflect expectations about next month or next year. Think about weather risks, geopolitics, wars and production cuts. Those expectations can lift current prices even if shoppers aren't buying more today.

Trader sentiment can drive prices independent of actual supply-demand fundamentals. When institutional investors bet on future scarcity, their collective actions create self-fulfilling price increases. We see this repeatedly in oil and metal markets.

Ever wondered why gas prices jump ahead of a hurricane that hasn't made landfall yet? This is why.

The bottom line

Prices reflect more than just your shopping habits. They're shaped by costs, policy changes, currency moves, supply chains and business decisions.

When prices jump, it helps to ask what's driving it. That awareness will help you make smarter choices and manage your own costs.

Related Content

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A slowing labor market was the Federal Reserve's main focus in mid- to late 2025. Attention has shifted to inflation in 2026 as energy prices spike amid the ongoing conflict in the Middle East.

Since late February, when the war between the U.S., Israel and Iran began, oil prices have spiked to their highest level in four years and gas prices have jumped above $4.50 per gallon.

"No matter how long the Iran war goes on, the economy is bound to suffer from it," write David Payne and Matthew Housiaux of The Kiplinger Letter. "How much and how severely depends on just how long the conflict continues to crimp key energy exports."

And it's already taking its toll on consumers' purchasing power. According to the Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) rose 0.6% from March to April and was 3.8% higher year over year, the highest annual increase since May 2023. In March, CPI was 0.9% higher month over month and up 3.3% year over year.

Energy costs had the biggest impact on the April CPI report. "The index for energy rose 3.8 percent in April, accounting for over forty percent of the monthly all items increase," wrote the BLS. Compared to the year-ago period, the energy index was up 17.8% and the gasoline index was 28.4% higher.

Food costs were also higher in April, as were those for household furnishings, airfares, personal care and clothing. The shelter index was higher, too, rising 0.6% month over month after "the BLS introduced a methodological fix to an issue caused by the federal government shutdown in late 2025," says Matt Colyar of Moody's Analytics.

"If it weren't for an unusually mild reading in health care costs, the April results would have been worse," says Kiplinger's Payne. "There will be a similar rise in energy costs for May, though shelter will return to its normal increase."

Economists were calling for headline inflation to be up 0.6% from March to April and 3.7% from the year prior.

Higher inflation will make the Federal Reserve more hesitant to lower interest rates — especially amid signs the labor market is stabilizing. According to CME Group FedWatch, futures traders don't expect any rate cuts at all in 2026. Earlier this year, betting odds were for at least one quarter-point cut.

What is the CPI?

"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."

The two primary measures of CPI are headline, which is the total inflation rate experienced by households, and core CPI, which excludes volatile food and energy prices.

Core CPI accelerated in April, rising 0.4% month over month and 2.8% year over year vs March's readings of 0.2% and 2.6%.

Economists expected core CPI to be up 0.3% on a monthly basis and 2.7% higher year over year.

So what does Wall Street think about the April CPI report? Here, we look at some of what economists, strategists and other experts have to say about the results and what they could mean for the Fed and investors going forward.

What Wall Street expected from the April CPI report

"Inflation is getting sticky and it's getting structural. Today’s report brings an unwelcome increase in services and shelter costs. Combined with the ongoing pressures from energy, this puts Kevin Warsh in a tough spot as he’s joining the Fed. Price pressures are compounding and driving core inflation higher." - David Russell, Global Head of Market Strategy at TradeStation

"Tuesday's CPI marks the second consecutive reading above 3%, suggesting that inflation is roaring back, largely driven by stubbornly high oil prices, which will dominate the inflation story for the rest of the year as the conflict continues to unfold in the Middle East. While this inflation is driven by oil prices and is not structural, it doesn't change the fact that consumers are paying higher prices, and as a result, we expect the Federal Reserve to be on hold through the summer on interest rates. More time and data are needed to assess future data and determine whether the Iran conflict and tariffs continue to pressure consumer prices." - Skyler Weinand, Chief Investment Officer at Regan Capital

"Fed fund futures markets are now pricing the chance of a rate hike at a better than a coin flip in March 2027. While rate hikes are possible should inflationary pressures continue to build, the potential for de-escalation of the conflict in the Middle East and muted strength in the labor market should keep the Fed on hold for the time being, with cuts still more likely than hikes in 2027 in our view." - Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments

"For the Fed, with two successively strong employment reports, it should be increasingly turning its gaze away from labor being a problem (which in our view is more of a supply issue than a demand one) toward inflation as the problem. Inflation was already broadly accelerating before the closing of the Strait of Hormuz, and this recent supply shock just exacerbates that underlying trend. New Fed Chair Kevin Warsh will certainly have a harder time framing this case for rate cuts in this environment." - Richard de Chazal, Macro Analyst at William Blair

"Unsurprisingly, energy drove a big increase in the headline rate. The Fed should view these inflation increases as transitory unless the administration responds with subsidies financed through increased deficit spending. President Donald Trump appeared to take a first step in this direction yesterday by promising to suspend federal gas taxes." - Stephen Coltman, Head of Macro at 21shares

"The firm April CPI print showed broad-based inflation across the economy in both headline and core measures, with elevated oil prices and tariff pass-through impacts evident. The Fed will get one more inflation print ahead of their June meeting, but with the strong trend in the jobs data, the balance of risks will likely force them to hold rates. However, prolonged stubborn inflation would increase the need for policy rate hikes and add pressure on a market already navigating geopolitical uncertainty and volatility." - Ryan Weldon, Investment Director and Portfolio Manager at IFM Investors

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Inflation's always been top of mind for economists. But since June 2022, when the Consumer Price Index (CPI) hit its highest level in 40 years (9.1%!) and the Federal Reserve hiked interest rates to their highest level in over 20 years, it's become a major talking point for the rest of us.

This is because inflation is a measure of our purchasing power. How much things cost and how quickly prices are rising directly impact not only how far a dollar will stretch for us, but also how far it will go for the companies that we invest in. And very few things make the stock market grumpier than a disappointing profit margin.

More recently, the ongoing conflict between the U.S., Israel and Iran has caused oil prices to spike to their highest level in four years and gas prices to soar above $4.00 per gallon, putting a quick halt to the decelerating inflation trend we've seen in recent years.

"No matter how long the Iran war goes on, the economy is bound to suffer from it," write David Payne and Matthew Housiaux of The Kiplinger Letter. "How much and how severely depends on just how long the conflict continues to crimp key energy exports. Some degree of inflation is now inevitable."

And the March CPI report showed that inflation is indeed on the rise.

March CPI, by the numbers

According to the Bureau of Labor Statistics, headline CPI rose 0.9% from February to March, and was 3.3% higher year over year. This marked the highest annual increase since May 2024.

The results came in much higher than February's figures of 0.3% and 2.4%, and exceeded economists' estimates for a 0.8% monthly increase and a 3.1% annual rise.

Rising energy costs were the main reason behind the hot headline number. "The index for energy rose 10.9 percent in March, led by a 21.2-percent increase in the index for gasoline which accounted for nearly three quarters of the monthly all items increase," explained the BLS.

Shelter costs also increased in March, as did prices for airfare, apparel, household furnishings and new vehicles.

As for the good news, costs for medical care, personal care and used cars and trucks declined.

And core CPI, which excludes volatile food and energy prices, rose 0.2% from February to March, matching economists' expectations. Year over year, core inflation came in at a slower-than-expected 2.6%.

What is CPI?

"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."

Since inflation peaked nearly four years ago, the CPI and core CPI have declined. But the March data show that headline inflation is once again on the rise.

And Payne expects another large increase in gas prices in the April CPI, considering it measures mostly mid-month data. "That should shoot the 12-month inflation rate close to 4.0%, where it should stay until gasoline prices start falling," he explains in the Kiplinger inflation outlook.

And higher inflation, Payne says, will make the Federal Reserve reluctant to cut interest rates.

So what does Wall Street think about the March CPI report? Here, we look at some of what economists, strategists and other experts have to say about the results and what they could mean for the Fed and investors going forward.

What the experts are saying about the March CPI report

"The March inflation data reflected the anticipated impact of higher oil prices on the headline print, while the core print showed a mix of softening services prices and strengthening goods prices. The headline increase marked the fastest increase in four years and should serve as a warning to the markets, as higher oil prices flow through to the core components over the next few months. The Fed is likely to monitor incoming data before making its next policy adjustment, with the bar for renewed hikes significantly higher than that for resuming rate cuts." – Ryan Weldon, Investment Director and Portfolio Manager at IFM Investors

"This may be the best headline inflation number we see for a while as it may only partially capture the full force of the Iran conflict, which sent U.S. crude and U.S. gas up 70% at peak. Wage growth has decelerated to levels consistent with the inflation target, and long-term inflation expectations remain anchored. We believe the Fed will look through the energy-driven noise so long as these factors hold. The Fed has room to be patient, and every reason to do so. Today's number buys the Fed time, but the real test lies ahead." – Alexandra Wilson-Elizondo, Global Co-CIO of Multi-Asset Solutions at Goldman Sachs Asset Management

"While the Iran conflict and closure of the Strait of Hormuz may come to a close in the near future, consumers will see price pressures on gas, energy, food and other commodities for at least the next three months, and that makes the Fed's job all the more tougher. The Fed keeps hitting detours on their path to cutting rates. Cuts are off the table for the foreseeable future. Hikes would only come if the economy is roaring on all cylinders and inflation is rising to untenable levels. The Fed has stated that it doesn't have the tools to fight supply side shocks and thus they will stick to their knitting monitoring employment and the stickier parts of inflation." – Skyler Weinand, Chief Investment Officer at Regan

"As we have been saying for the past month and a half, the duration of the war matters as does the extremely important Strait of Hormuz, because if the supply shock is temporary then the economy can weather this storm and the Fed will have an opportunity to lower interest rates by the end of the year, but if the inflation shock is more long-lasting they will have no choice but to sit on their hands for the entire year." – Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management

"Yes, we are seeing an oil-related spike in headline inflation, but core inflation remains tame. Unlike the previous spike in 2022, there is no broad-based inflationary trend in the U.S. economy and consumers do not have the cushion of pandemic savings to sustain their spending. The Fed will be loath to hike into this. If anything, the longer this conflict continues, the more aggressively the Fed will have to ease once oil prices peak out. The market understands this and you see it reflected in the performance of the Dollar and broader risk assets ever since 2-year Treasury yields peaked in late March." – Stephen Coltman, Head of Macro at 21shares

"Inflation, Iran, and upcoming earnings are all driving markets, but the relative importance keeps shifting. We think earnings and fundamentals win out. Inflation is a little hot, but reasonably stable. Iran may shift some consumption and investment patterns, but the potential demand destruction is probably not meaningful enough to matter as of now." – Scott Helfstein, Head of Investment Strategy at Global X

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Inflation's always been a hot topic for economists. But since June 2022, when the Consumer Price Index (CPI) hit its highest level in 40 years (9.1%!) and the Federal Reserve hiked interest rates to their highest level in over 20 years, more folks have become interested in the data.

This is because inflation is a measure of our purchasing power. How much things cost and how quickly prices are rising directly impact not only how far a dollar will stretch for us, but also how far it will go for the companies that we invest in. And very few things make the stock market grumpier than a disappointing profit margin.

More recently, the escalating conflict between the U.S., Israel and Iran has caused oil prices to spike to their highest level in four years, muddying the inflation picture going forward.

February CPI, by the numbers

Higher gas prices had a marginal impact on the February CPI report, though it's likely March data will be affected to a larger degree.

According to the Bureau of Labor Statistics, headline inflation was up 0.3% from January to February, and 2.4% higher from the year prior. Both figures match what economists expected.

Shelter was the largest factor behind the monthly increase in headline CPI, according to the BLS, rising 0.2% month to month. Food and energy costs were also up.

Core CPI, which excludes volatile food and energy prices, was 0.2% higher month over month and up 2.5% year over year, arriving in line with the Street's forecasts.

What is CPI?

"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."

Since inflation peaked nearly four years ago, the CPI and core CPI have declined. Still, inflation remains too high for the Federal Reserve.

So while the Fed has cut interest rates by 1.75 percentage points this cycle in response to a cooling labor market, it's currently expected to keep the target range for the federal funds rate unchanged at its next three meetings, just as it did in January, to see how recent rate cuts are impacting inflation and employment.

So what does Wall Street think about the February CPI report? Here, we look at some of what economists, strategists and other experts have to say about the results and what they could mean for the Fed and investors going forward.

What experts have to say about the February CPI report

"While Wednesday's CPI for February does not account for the recent spike in oil prices, the print was in line with expectations, suggesting that inflation was stable before the Iran conflict. As we move towards the Fed's 2% inflation target and the employment picture continues to weaken, we're on track for at least one rate cut later this year." – Skyler Weinand, Chief Investment Officer at Regan Capital

"Steady disinflation on shelter is a good sign, but tariffs seemed to drive up the apparel category. These inflation numbers provide some comfort, but this month's spike in energy prices make them a relic of the past. Investors and the Fed are in uncharted territory right now, taking their cues from crude oil and tanker traffic in the Strait of Hormuz." – David Russell, Global Head of Market Strategy at TradeStation

"CPI printed in line with consensus expectations for February, a ho-hum release that reflects the period before the escalation of military action in the Middle East that will lift inflation readings next month due to higher energy prices. An encouraging sign was the moderation in both core and 'super core' CPI, showing that price pressures were not accelerating into the current oil price shock, which should give policymakers some degree of comfort. With today's release already largely 'stale' due to recent events in the Middle East, we expect financial markets to have a limited reaction to this news." – Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments

"Reading too far into today’s CPI in most respects amounts to arguing over the dinner menu on the Titanic, since the economy has struck an energy cost iceberg. In our view, it confirms that underlying inflation is tracking with employment – which is to say – downward trending. We are adding to our long duration in Treasuries." – Brad Conger, Chief Investment Officer at Hirtle Callaghan

"For investors, it’s important to look through short-term energy-driven moves and build diversification and portfolio resilience. The Federal Reserve is likely to remain on hold in the near term. Resilient growth and a labor market that is cooling without sharply deteriorating give policymakers time to assess incoming data. Near-term inflation risks are tilted slightly higher if geopolitical tensions keep energy prices elevated." – Gargi Chaudhuri, Chief Investment and Portfolio Strategist, Americas at BlackRock

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Inflation's always been a hot topic for economists. But since June 2022, when the Consumer Price Index (CPI) hit its highest level in 40 years (9.1%!) and the Federal Reserve hiked interest rates to their highest level in over 20 years, more folks have become interested in the data.

This is because inflation is a measure of our purchasing power. How much things cost and how quickly prices are rising directly impacts not only how far a dollar will stretch for us, but also how far it will go for the companies that we invest in. And very few things make the stock market grumpier than a disappointing profit margin.

That's why the January CPI report, which was released ahead of Friday's open, is one of the most-anticipated events on this week's economic calendar.

What did today's CPI report show?

According to the Bureau of Labor Statistics, headline CPI rose 0.2% month over month in January, and was 2.4% higher year over year. In December, CPI was up 2.7% annually.

Shelter was the largest factor behind the monthly increase in headline CPI, according to the BLS, rising 0.2% from December to January. Food costs were also up, though falling energy prices offset these increases.

Core CPI, which excludes volatile food and energy costs, rose 0.3% from December to January, and was 2.5% higher on a 12-month basis. In December, core CPI was up 2.6% year over year.

Economists expected the headline and core readings to both be 2.5% higher year over year.

What is CPI?

"CPI is a measure of the average price of that basket of goods and services over time," writes Kiplinger contributor Coryanne Hicks. "The specific goods and services within the CPI basket are based on information around 24,000 families and individuals give the U.S. Bureau of Labor Statistics on what they buy."

Since inflation peaked nearly four years ago, the CPI and core CPI — which excludes volatile food and energy prices — have declined. Still, inflation remains too high for the Federal Reserve.

So while the Fed has cut interest rates by 1.75 percentage points this cycle in response to a cooling labor market, it's currently expected to keep rates unchanged at its next two meetings, just as it did in January, to see how recent rate cuts are impacting inflation and employment.

One factor the Fed continues to monitor is President Donald Trump's tariff policies. While they've raised prices in some durable goods, including electronics and furniture, their broader impact has been less than many initially feared.

So what does Wall Street think about the January CPI report? Here, we look at some of what economists, strategists and other experts have to say about the results and what they could mean for the Fed and investors going forward.

What the experts say January CPI report

"On balance, we found today's report to be encouraging. The disinflation in primary shelter is continuing along, and there are few signs of an acceleration in the private sector rent measures that serve as forward-looking indicators. Tariff-induced price hikes probably have not fully worked their way through the data, but we are closer to the end than the beginning of this source of higher prices. For the Fed, a March rate cut looks highly unlikely, but the continued gradual pace of disinflation should keep prospects for additional rate cuts alive for later in the year." – Tom Porcelli, Chief Economist at Wells Fargo

"While normally these type of inflation readings would give the Fed the go ahead to continue to cut interest rates, the robust job numbers that came out on Wednesday means we seemingly are entering a 'gold medal' economy with strong GDP growth, a stabilizing job market and lower inflation across the board. Looking forward, we would expect this environment of relatively strong growth, juiced by higher tax refunds from the OBBB, an improving job market and a continued trend of lower inflation will keep interest rates in a steady range as we await Kevin Warsh's fresh perspective at the Fed, when he takes over in May." – John Kerschner, Global Head of Securitized Products and Portfolio Manager at Janus Henderson Investors

"This CPI report didn't just cool inflation — it shifted what matters next. At 2.4%, inflation is fading into the background, and behavior is doing more of the work than policy. Consumers are pushing back, companies are absorbing costs, and pricing power is thinning. Markets responded because this gives the Fed flexibility — and shifts the investor focus away from rate cuts and back to fundamentals. The next phase won’t reward macro bets, it will reward earnings discipline and balance-sheet strength." – Gina Bolvin, President of Bolvin Wealth Management Group

"CPI inflation was in line with expectations, but even with ongoing disinflation in shelter and used cars, other core goods and services still show lingering price pressure. With the labor market holding up better, that should keep the Fed on pause at least through April." – Sonu Varghese, Chief Macro Strategist at Carson Group

"AI is reshaping productivity, but it hasn't yet reshaped inflation. Until AI meaningfully offsets cost pressures, the Fed's path back to 2% won’t be frictionless. While inflation ran modestly firmer, labor market indicators continue to point to cooling without a sharp deterioration. Unemployment remained steady, reinforcing the Fed's ability to remain patient as it weighs progress on both sides of its mandate." – Gargi Pal Chaudhuri, Chief Investment and Portfolio Strategist, Americas at BlackRock

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The latest Consumer Price Index (CPI) report showed inflation is holding steady, though key areas such as shelter, food and energy saw prices rise. The data will likely keep the Federal Reserve sidelined at its January meeting, with the central bank all but guaranteed to keep interest rates unchanged.

According to the Bureau of Labor Statistics, headline CPI was up 0.3% from November to December, faster than the 0.2% rise seen the month prior and arriving in line with economists' expectations.

The CPI was 2.7% higher year over year, matching November's increase and economists' estimates.

Shelter was the largest factor behind the monthly increase in headline CPI, according to the BLS, rising 0.4% from November to December. Food and energy costs were also up.

Other areas that saw price increases included airfare and hospital services, while used cars and trucks and household furnishings saw prices edge down.

Core CPI, which excludes volatile food and energy prices and is considered a more accurate measure of underlying inflation trends, increased 0.2% month over month and rose 2.6% compared to year prior, matching what was seen in November and coming in below expectations.

"Economists were worried about some statistical resets after the government shutdown, but the bigger disinflation trend continued," says David Russell, global head of market strategy at TradeStation.

Russell adds that the report is good news for those worried about inflation reaccelerating. And while the December CPI "probably won't have much influence on Fed policy given the coming change in leadership ... it keeps expectations on track for lower rates and likely supports risk appetite."

Indeed, rate-cut expectations are little changed following this morning's inflation data. According to CME FedWatch, futures traders are pricing in a 95% chance the Fed will keep the federal funds rate unchanged at its January meeting, down from 95.6% one day ago. The first quarter-point rate cut isn't expected until June, with a total of two priced in for the year.

That said, with the December CPI data now in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for the Fed and investors going forward.

Experts' takes on the December CPI report

"By most accounts, inflation is unlikely to drop to the 2% target in 2026, although it may gravitate towards that target, assuming that Fed independence stays intact. Some of the impact on inflation from tariffs hasn't been fully reflected in numbers, while other pockets of inflation reflect more structural problems (e.g., the price of beef and related items)." – Carla Nunes, Managing Director within Kroll's Financial Advisory Practice

"We've seen this movie before — inflation isn't reheating, but it remains above target. There's still only modest pass-through from tariffs, but housing affordability isn't thawing. Today's inflation report doesn’t give the Fed what it needs to cut interest rates later this month." – Ellen Zentner, Chief Economic Strategist for Morgan Stanley Wealth Management

"Inflation has been a little above the Fed target, but that masks some better news below the surface. The rate of increase has been relatively steady, and that should be good news for the markets. There are no indications that prices are likely to spike even after the impact of inflation and higher mortgage rates. The Fed still has some room to move, especially given weaker job creation and downward revisions in the latest report, but they may choose to wait and see if the impact of tariffs is really transitory. Rates are still likely to come down, but the timing is getting a little more cloudy." – Scott Helfstein, Head of Investment Strategy at Global X

"Shelter inflation showed some strength and will be an area to monitor going forward since it will continue to be understated until the April CPI release due to the missed sampling window in October. While investors will cheer this release as further evidence of disinflationary progress, the Fed will remain in 'wait and see' mode given the uncertainty until more distance came be put between the data and the shutdown. This release is positive for risk assets and increases the odds that the Fed will provide additional monetary policy support in 2026." – Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments

"Core CPI inflation was on the softer side, signaling lower upside risk for inflation (especially from tariff-impacted core goods). We’re still unlikely to get another cut from the Federal Reserve in Q1 thanks to more solid labor market data in December, including lower unemployment. Still, the lower inflation print will allow the Fed to continue focusing on labor market risks." – Sonu Varghese, Global Macro Strategist at Carson Group

"Today's CPI release is a welcome dose of hard data in what has been a light-data, heavy-news environment. Ultimately, the data reinforces the Goldilocks environment. That said, inflation prints are likely to shift from being a primary market trigger to more of a background constraint as the market becomes increasingly focused on the risks to Federal Reserve independence. We continue to like being long risk, avoiding the news treadmill and positioning instead for durable, tradeable themes." – Alexandra Wilson-Elizondo, Global Co-CIO of Multi-Asset Solutions at Goldman Sachs Asset Management

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We often look forward to retirement as a time to kick back, travel more or otherwise revel in our golden years.

But smooth sailing is no guarantee in retirement, especially if you don't understand where the risks lie and make plans to avoid them.

Here are seven risks that could sink, or at least heavily damage, your retirement, along with strategies to avoid them.

1. Longevity risk

Longevity would, in most instances, seem like a positive thing. But the longer you live, the more likely you are to run out of money. When planning, consider the possibility that your retirement could last two or three decades — or longer.

This means you need a guaranteed monthly income that will cover all of your expenses and last for the rest of your life. That income could include Social Security, a pension or other income sources that you can't outlive.

One strategy that can increase your monthly income stream is to purchase a deferred annuity, such as a fixed-index annuity, and add a lifetime income rider to it. A deferred annuity allows your money to grow tax-deferred until you start withdrawing from it.

When you are ready to begin withdrawing money from the annuity, you activate the income rider, and you will receive a monthly payment for life, even if your account value drops to zero.

2. Market risk

When you're young, a market downturn usually isn't necessarily worrisome because you have years to recover.

Historically, the market has always rebounded, so you can wait it out. As you near or reach retirement, though, that's no longer the case.

The worst scenario is a market drop occurring at the same time as you withdraw money from your investments to live on. Your portfolio balance can plummet quickly.

People often try to combat this risk by moving a percentage of their money from the stock market into less aggressive investments.

But that comes with its own risks. If you become too conservative, your investment's growth may not keep up with inflation.

Again, this is where a carefully planned income stream can help.

3. Sequence of returns risk

It may surprise you to learn that retirements can be unequal even if retirees have the same amount of retirement savings and the same return on their investment over time.

The reason for that is sequence of returns risk. Put simply, people who experience a down market early in retirement and a positive market later fare worse than those who experience the opposite.

A hypothetical scenario illustrates why. Two men, John and Bob, both retire with $100,000 in personal savings. Both retirees will withdraw $5,000 a year to supplement their other retirement income, and both will live another 25 years. Both men enjoy a 6.8% average annual rate of return on their investments.

However, while Bob sees his $100,000 grow over the 25 years, John sees a significantly different result. He runs out of money in year 19.

The difference is that John's worst years came at the beginning of retirement. His portfolio suffered losses that, ultimately, he could not recover from. Bob's best years were during the early years of his retirement, helping his portfolio grow and giving him more of a cushion for when the down years arrived.

One way to manage sequence of returns risk is to hold your personal investments in a diversified portfolio with a broad range of asset types and classes. Another strategy is to maximize your guaranteed income sources, which allows you to reduce your reliance on personal savings and investments.

4. Tax risk

Many retirees saved for retirement by contributing to tax-deferred accounts, such as traditional IRAs or 401(k) accounts. A downside of these accounts is that when you retire and begin withdrawing the money to live on, your withdrawals are taxed as ordinary income.

In addition, once you reach the age of 73 (75 for those born in 1960 or later), required minimum distributions (RMDs) kick in. Those RMDs force you to withdraw a certain percentage from your tax-deferred accounts each year.

A popular strategy for reducing some of your tax risk is to convert tax-deferred accounts to Roth accounts. You pay taxes when you make the conversion, but the money in the Roth account grows tax-free, and you don't pay taxes when you make withdrawals.

5. Interest rate risk

Although debt is an obvious way in which people are affected by interest rates, a retiree doesn't need to be in debt for interest rates to be problematic.

Many retirees have money in bonds, and interest rates directly affect these, sometimes for the better and sometimes for the worse. When interest rates rise, bond values fall. When interest rates fall, bond values rise.

Diversifying your investments with a mix of stocks, bonds and other assets is one way to mitigate interest rate risk.

6. Inflation risk

Inflation can be catastrophic to retirees on a fixed income.

Although Social Security has an annual cost-of-living increase, this can be canceled out by increases in health insurance costs, including Medicare.

To combat inflation, retirees might want to revisit how their money is invested. Stocks have the potential to provide greater investment returns that could outpace inflation, but they are also riskier than some other investments, so you still want to carefully weigh what percentage of your portfolio goes to stocks.

You might also be able to grow your income with a fixed-index annuity with an increasing income rider or ladder multiple income annuity products.

7. Long-term care risk

Few people nearing retirement want to focus on the fact that they may eventually need expensive long-term care, but that's the reality.

Someone who turns 65 today has about a 70% chance of requiring some type of long-term care during their remaining years. Such care is not cheap.

The projected monthly cost of a semiprivate room in a nursing home in 2026 is $9,842, according to the annual CareScout and Genworth Cost of Care Survey. An assisted living facility is $6,259 a month.

Several options exist for handling this risk, including having a traditional long-term care insurance policy, a life insurance policy with a long-term care rider or personal savings.

Putting a plan in place

Preparing for these retirement risks can be the difference between a relaxing and enjoyable retirement and one that causes constant anxiety. While there is no guarantee these risks will be eliminated, you can take steps to mitigate some of the pain they cause.

As you can see, there's a lot to digest here. A financial professional can help you understand how much each risk might affect your retirement and help you create a game plan to prepare for them.

That way, once your working years are behind you, you can focus on more of the things that make retirement worthwhile.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The latest Consumer Price Index (CPI) report showed a modest uptick in inflation, but the data on price growth are muddied considering October figures were not collected due to the record-long government shutdown.

According to the Bureau of Labor Statistics, headline CPI was up 0.2% from September to November, slower than the 0.3% month-over-month rise seen in September and matching economists' expectations.

The CPI was 2.7% higher year over year, below September's 3.0% rise and the 3.0% increase economists anticipated.

Energy costs were a large factor behind the monthly increase in headline CPI, according to the BLS, improving 1.1% from September to November. Food costs were also on the rise, up 0.1%.

Other areas that saw price increases over the two-month period included household furnishings and personal care, while lodging away from home, recreation and apparel saw prices edge down.

Core CPI, which excludes volatile food and energy prices and is considered a more accurate measure of underlying inflation trends, increased 0.2% from September to November and rose 2.6% compared to the same period last year. In September, core CPI was 0.2% higher month over month and 3.0% year over year.

"Today's low inflation reading won't move the needle for the Fed given how noisy the data is," says Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management.

The absence of October data makes monthly comparisons "impossible," Haigh adds. "The Fed will instead focus on the December CPI released in mid-January, just two weeks before its next meeting, as a more accurate bellwether for inflation."

Indeed, rate-cut expectations have changed little following the delayed release of the November CPI. According to CME FedWatch, futures traders are pricing in a 71% chance the Fed will keep interest rates unchanged at its January meeting. Odds for a March rate cut are currently at 46%.

That said, with the November CPI data now in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for the Fed and investors going forward.

Experts' takes on the November CPI report

"November CPI coming in weaker than expectations may keep the Federal Reserve on hold for the foreseeable future when it comes to any interest rate decisions. We likely have seen the last interest rate move last week from Chairman Powell's Fed as they now take a pause to assess if the inflation picture continues to improve and if employment continues to weaken." – Skyler Weinand, Chief Investment Officer at Regan Capital

"The steady downtrend in shelter costs is starting to bring down core inflation. This is good news for the Fed because shelter is the biggest category in overall inflation. The disinflationary trend may continue this month because oil has dropped and home prices are still under pressure. This is a relief for people worried about a hawkish start to the year. A Santa Rally could still be in the cards." – David Russell, Global Head of Market Strategy at TradeStation

"It always sounds smarter to predict trouble ahead, but this morning's inflation data was much better than expected. Of course, it's only one month's data points and they will likely fluctuate in the upcoming months, but the main concern of Fed officials who are reluctant to keep cutting is that inflation is persistently high and won't come down if they keep lowering interest rates, and at this point, that doesn't look like it's the case." – Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management

"Some caution is warranted in interpreting the topline inflation readings. The all-important shelter component was unusually weak in the two months leading into November, which may be more noise than signal due to the disruptions from the shutdown. That said, core goods inflation, which is at the epicenter of the tariff passthrough process, seems to have peaked, for now. Elsewhere, food and energy prices matter a lot of consumers' psychology, and though utilities costs are up appreciably, households are benefiting from minimal pump price growth." – Bernard Yaros, Lead Economist at Oxford Economics

"Today's CPI shows disinflation not just holding, but gathering rhythm — a reminder that prices can still move in the right direction, even when the details get noisy." – Gargi Pal Chaudhuri, Chief Investment and Portfolio Strategist at BlackRock

"Our take is that underlying inflation remains better behaved than we anticipated in late 2025, though we believe several more months of data — beyond the distorted government shutdown period — will be needed to confirm what is a remarkable improvement. At the least, this report adds to our conviction that the buildup of tariff-related inflation should prove limited." – Jennifer Timmerman, Senior Investment Strategy Analyst at Wells Fargo Investment Institute

""Inflation still feels high to many households because prices have moved up in levels, not just rates, and tariffs are contributing to that experience. Even as year-over-year inflation has cooled, households are facing higher baseline prices for goods, as companies have only recently (within the past few months) begun passing along tariff-related costs to end consumers. Tariffs may or may not cause sustained inflation, depending on timing, policy, and broader conditions. But the impact is ultimately psychological: higher prices, once in place, are felt continuously, even if inflation is no longer accelerating. That ongoing exposure is what keeps inflation feeling high for many households, despite cooling headline numbers. But even if prices for essential goods only go up for a while and then stabilize, if your wages haven't gone up accordingly, the effect leaves people with less acquisitive power." – Katie Klingensmith, Chief Investment Strategist at Edelman Financial Engines

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The latest Consumer Price Index (CPI) report showed that President Donald Trump's tariff policies have had a muted impact on cost pressures. And it all but guarantees that the Federal Reserve will cut rates again when it meets next week.

According to the Bureau of Labor Statistics, headline CPI was up 0.3% month over month in September, slower than the 0.4% rise seen in August and the 0.4% increase economists expected.

The CPI was 3.0% higher year over year, a quicker pace than the month prior. Still, the results arrived below the 3.1% increase economists anticipated.

Gas prices were the "largest factor" behind the monthly increase in headline CPI, according to the BLS, surging 4.1% from August to September. Food costs were also on the rise last month, up 0.2%.

Core CPI, which excludes volatile food and energy prices and is seen as a better measure of underlying inflation trends, was up 0.2% month over month and 3.0% year over year. Both figures were lower than those seen in August and economists' forecasts.

"Inflation might not be slowing, but it's not surprising to the upside anymore," says David Russell, global head of market strategy at TradeStation. "The details are positive, with shelter and transportation services moderating. Some key parts of the basket are cooling even if tariffs nudge items like apparel higher."

Russell adds that the September CPI report keeps the Fed on track to cut rates by a quarter-percentage point at next week's meeting, and will likely have policymakers striking a more dovish stance moving forward

According to CME FedWatch, futures traders are now pricing in a 99% chance the Fed will issue its next quarter-point rate cut at its meeting next week. Odds for a December rate cut have risen to 97% from 73% one month ago.

While delayed by a little over a week, the BLS released today's data so that the Social Security Administration could calculate the cost-of-living adjustment (COLA). But with data collection services still suspended, it's unclear when we'll see the next CPI report.

That said, with the September CPI data now in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for investors going forward.

Experts' takes on the September CPI report

"A very good inflation print, with muted impact from tariffs as expected. Gasoline prices hurt what could have been an even better number, but that is solvable. While inflation is still above target levels, this paves the way for the Fed to continue its rate-cut cycle, and further solidifies confidence in the bull market. Expect volatility on a broader trend upward in equity markets from here." – Jason Barsema, Co-Founder and President at Halo Investing

"Much like a Sherlock Holmes' story, inflation is the dog that didn't bark. So many people have been expecting a sharp increase in inflation and have positioned bearishly as a result, but the market is likely to keep squeezing the shorts until they realize that the economy – and corporate America – is more resilient than many expected." – Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management

"The CPI inflation report paves the way for the Fed to follow up its September meeting rate cut with another one next week. This will likely be a support to investors to push the stock market to new highs. Declining interest rates will grease the wheels of the economy and be a benefit to corporations and consumers." – Ross Bramwell, CFA, Managing Director of Investment Communications, Shareholder at HB Wealth

"While signs of tariff-induced inflation are apparent in select categories such as apparel and furniture, goods prices increased at a slower pace in September than August broadly. This suggests that the pass-through of higher tariffs to consumers has continued to undershoot expectations, which in turn has opened the door for the Fed to lower rates to support a cooling labor market." – Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments

"The Fed has telegraphed a 25 basis point cut for next week as well as another 25 basis point cut for December. With the government shutdown and lack of available data, we expect these cuts to proceed. Once the government reopens and if we start to see weak unemployment data and the unemployment rate rises precipitously towards 5%, we could expect either a 50 basis point cut for December or the Fed to communicate a string of cuts in 2026." – Skyler Weinand, Chief Investment Officer at Regan Capital

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Calls for the Federal Reserve to cut interest rates have been growing louder, and the central bank has now acted.

On September 17, the Fed reduced its benchmark rate by a quarter of a percentage point, its first cut since December, citing concerns about a weakening labor market.

This, among other recent economic developments, has sparked a debate about whether the Fed's 2% inflation target is still appropriate.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Inflation targeting is a monetary policy strategy central banks use to maintain price stability and foster economic growth. Traditionally, many central banks have set an inflation target of 2%, a level deemed conducive to financial stability and predictability.

For decades, the 2% rule was seen as the sweet spot: low enough to avoid destabilizing inflation, but high enough to keep economies from slipping into deflation.

The logic was sound for a world defined by globalization, technological advancement and efficient supply chains. But the world has changed, and clinging to the old rule could do more harm than good.

Today, I believe a 3% target may be more realistic, more flexible and ultimately healthier for long-term growth.

Why 3% makes more sense today

Raising the inflation target to 3% would give the Fed more room to maneuver. In a low-growth environment, it would allow nominal interest rates to stay at levels that can still be cut meaningfully when the economy weakens.

That flexibility reduces reliance on unconventional tools, such as quantitative easing, which can create distortions in financial markets.

Slightly higher inflation expectations also encourage spending and investment. When businesses and households believe prices will rise moderately, they are more likely to act sooner rather than later, which supports demand and fuels recovery.

Of course, if spending runs too hot, it can add upward pressure on prices — but in moderation, this dynamic is a healthy part of a recovering economy.

In the labor market, modest inflation plays an important role too. In a 2% inflation environment, wages are often "sticky," meaning slow to adjust downward even when necessary. That rigidity can drive unemployment higher.

With a 3% inflation target, wage cuts become smoother and less painful (to employers, at least), leading to a healthier labor market overall.

Lessons from recent history

The global economy has changed dramatically since the 1990s. During the financial crisis of 2008-09, inflation actually turned negative, a rare and destabilizing period of deflation and collapsing asset prices.

Even after the government's extraordinary stimulus measures, it often struggled to push inflation back up to 2% in the years that followed.

That struggle was not unique to the U.S. Many advanced economies faced the same challenge. Globalization, hyper-efficient supply chains and the rise of digital marketplaces kept downward pressure on prices, making it difficult for central banks to stimulate inflation to the 2% target.

Then came COVID-19. Supply chains fractured, reshoring gained momentum and regionalism intensified. Suddenly, the deflationary world was gone.

Demand surged just as supply was constrained, pushing the Consumer Price Index (CPI) above 9% in 2022. While inflation has since cooled, August's CPI still came in at 2.9% year over year, above target even after the Fed's aggressive tightening campaign.

This new environment, marked by tariffs, persistent supply frictions and a structurally different global economy, makes it far less likely we will return to the pre-COVID disinflationary world.

If the Fed continues to insist on forcing inflation back down to exactly 2%, in my opinion, it risks undermining growth, confidence and employment.

The risks of change

Adjusting the target is not without risks:

Credibility. If people perceive the Fed as moving the goalposts, they may lose confidence in its ability to maintain price stability.

Expectations. If consumers and businesses believe the Fed will tolerate significantly higher inflation, they may demand higher wages and raise prices pre-emptively, triggering a wage-price spiral.

Global spillovers. In a globalized economy, a U.S. shift would reverberate abroad. Other central banks would need to decide whether to follow suit, and lack of coordination could create volatility in currencies and capital flows.

These risks are real, but they are manageable. Clear communication, gradual implementation and coordination with global counterparts can preserve trust and prevent destabilization.

Why sticking to 2% could be worse

While the risks of raising the target are significant, the risks of clinging rigidly to 2% may be greater. For several years before COVID, economists openly wondered if inflation could ever consistently return to 2%.

Even today, with restrictive policy in place, the Fed has only managed to cool inflation to just under 3%.

If the Fed continues to fight relentlessly for 2%, the cost could be higher unemployment, weaker growth and less confidence in the economy. The central bank could find itself trapped in a cycle of overtightening, always pushing against forces beyond its control.

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With the September rate cut, the Fed has signaled its willingness to act to support the economy.

That step creates an opportunity to go further, rethink the outdated 2% target and adopt a more flexible 3% goal that aligns with today's structural realities.

What investors could do

A shift to a 3% inflation target would not mean runaway prices, but it would reshape the investment landscape.

For individuals, that calls for a few practical adjustments:

Do not hold excess cash. With higher inflation, money parked in savings loses purchasing power more quickly. Keep an emergency fund liquid but consider investing surplus cash.

Revisit fixed-income exposure. Bonds are more vulnerable in higher-inflation environments. Ladder maturities or add Treasury inflation-protected securities (TIPS) to cushion the impact.

Favor real assets. Investments tied to real assets, such as commodities, infrastructure and real estate, tend to perform better when inflation runs hotter.

Stress-test retirement plans. Even a 1% shift in long-term inflation assumptions can significantly affect future spending power. Make sure your retirement projections account for this new reality.

A pragmatic path forward

The 2% target worked well for decades, but the economic landscape has changed. By raising the goal to 3%, I believe the Fed can preserve credibility, better support growth and still protect price stability.

The bottom line: Three is the new two. And recognizing that sooner rather than later may be the best way to keep America's economy, and your portfolio, resilient in the decade ahead.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Benjamin Franklin famously wrote in a letter, “In this world nothing can be said to be certain, except death and taxes.”

Little did he anticipate a third certainty that behaves like both: inflation. It creeps in slowly, yet hits with lasting consequences, especially in retirement.

Consider that 64% of Americans say they fear running out of money in retirement more than death itself, according to an Allianz Life survey. While many factors feed that fear, rising prices are the biggest culprit. More than half (54%) of those surveyed said inflation is what keeps them up at night.

“Inflation is the silent killer of retirement,” says Will Kellar, CFP® and managing partner at Human Investing. “Left unchecked, it steadily erodes purchasing power and can derail even well-funded plans.”

This is the essence of the retirement rule of the shrinking dollar, a reminder that how you plan, spend and invest can either slow the erosion of your purchasing power — or speed it up. The steps to navigate it touch nearly every part of your financial life, from your portfolio to your grocery bill.

Why the 'rule of the shrinking dollar' matters most in retirement

If you wonder why McDonald’s no longer has a dollar menu, the answer is inflation. Yet, a modest level of inflation is considered normal and even necessary for a healthy, growing economy.

However, when inflation becomes unpredictable or rises too quickly, it chips away at purchasing power and creates economic uncertainty. That’s especially problematic for retirees, who often live on a relatively fixed income.

Even moderate inflation can take a toll. For example, if you need $60,000 a year to live comfortably today, that same lifestyle could cost more than $108,000 in 25 years with just 2.5% annual inflation.

“The biggest mistake is pretending inflation can’t be planned for,” says Melissa Caro, CFP® and founder of My Retirement Network. “You don’t need to predict the exact number; you just need to budget for it. And if you end up overestimating, you’ve built yourself some breathing room.”

Caro says planning needs to happen in two key areas: “Your investments have to grow enough to cover rising costs, and your spending plan has to be flexible.”

Fighting inflation in your portfolio

Inflation doesn’t just raise prices; it also reduces the real return on your investments. In other words, without proper planning, your portfolio’s ability to support your retirement lifestyle might decline over time.

“Going too conservative too early can backfire,” cautions Caro.

How do you guard against that when the common advice in retirement is to play it safe?

“The best defense is a diversified portfolio that includes an appropriate allocation to stocks,” says Kellar. “While equities bring short-term volatility, they’ve never experienced a total and permanent loss. In fact, over the long run, they’ve been the most reliable hedge against rising costs.”

For example, analyst Charlie Bilello found that in the last 30 years, inflation cut the value of a dollar in half. During that time, the S&P 500 delivered an after-inflation gain of 870%.

Kellar adds: “Pairing equities with inflation-protected bonds and cash reserves gives retirees both staying power and flexibility.”

Where your investment funds are located matters, too. Mark Stancato, CFP® and founder of VIP Wealth Advisors, recommends taking advantage of tax diversification.

“Having both Roth and pre-tax accounts gives retirees flexibility to adjust withdrawals in high-inflation years without blowing up their tax bracket,” he says.

Retirement's biggest inflationary threat: health care

As we age, we tend to spend more on health care, which, unfortunately, is one of the most inflation-prone expenses in retirement. Medical costs routinely outpace overall inflation, making them a critical line item to plan for.

A report from the Center for Retirement Research at Boston College found that 12% of the median retiree’s total income went to medical expenses. For many, about 25% of their Social Security benefits were consumed by health care costs alone.

“Health care is the standout as far as vulnerability. It almost always rises faster than general inflation and needs to be modeled separately,” says Caro.

Kellar agrees, noting: “While overall inflation has averaged around 3%, health care has risen closer to 5%, a gap that compounds dramatically over a 20-to-30-year retirement.”

To combat this, Kellar recommends tools such as Health Savings Accounts (HSAs), which offer a rare triple tax advantage: Contributions reduce taxable income, grow tax-deferred and can be withdrawn tax-free for eligible medical expenses.

Flexible spending to navigate fluctuating prices

While some rising costs are expected, others can catch retirees off guard. Take, for example, the recent spike in egg prices, which jumped more than 350% per dozen at one point in 2025 compared with the same period last year.

That’s why financial experts emphasize the importance of flexibility.

“A 30-year retirement is like running three very different marathons back-to-back,” says Stancato. He suggests following dynamic spending rules. That could mean adjusting discretionary categories, such as travel or dining out, based on market performance or inflation levels, while keeping essential expenses covered.

Kellar calls this a “tiered spending plan.” He advises: “Cover your must-have essentials first, then add flexible layers for discretionary expenses like hobbies or vacations. That way, if inflation runs hotter than expected, you can make changes without jeopardizing your quality of life.”

Don’t assume all costs will drop in retirement either. “Even if the mortgage is paid off, housing costs remain a big pressure point,” says Caro. “Property taxes, insurance and maintenance don’t stand still.”

Moving to cheaper climates

Inflation isn’t uniform. It varies from state to state due to factors such as local taxes, climate-driven consumption patterns and transportation costs. That means where you live can have a big impact on how far your retirement dollars stretch.

This was most apparent during the COVID pandemic, as prices fluctuated widely around the U.S., according to research by the Federal Reserve Bank of San Francisco.

That’s why more people are increasingly “choosing ‘geographic arbitrage,’ relocating to lower-cost states or even countries for part of the year,” says Stancato.

Popular retirement destinations abroad, including Thailand, Malaysia, Ecuador, Colombia, Mexico and Portugal, can offer major savings on housing, health care and everyday expenses compared with the U.S.

Still, it doesn’t always pay to let inflation dictate your ZIP code. “Inflation-proofing isn’t about hiding from rising prices, it’s about building flexibility into both your portfolio and your life,” Stancato adds.

We might not be able to avoid death, taxes or the effects of a shrinking dollar. But we can adapt. As Franklin wisely put it: “Energy and persistence conquer all things.”

Read More Retirement Rules

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Since the pandemic, inflation has stretched Americans' dollars thin. Inflation has risen nearly 23% since January 2021, according to the Bureau of Labor Statistics.

Wages, on the other hand, haven't quite kept up, rising by 21.5%.

While several interest rate adjustments and policies, such as the Inflation Reduction Act or the One Big Beautiful Bill, have been made to help curb inflation, Americans' concerns are growing.

The University of Michigan's Consumer Sentiment Survey showed year-ahead inflation expectations among Americans grew to 4.8% in August, up from 4.5% in July.

The headline Consumer Sentiment Index came in at 58.2 for the month, down more than 5% from July and more than 14% from a year ago.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

As Americans continue to grapple with prices that are rising faster than wages and dwindling confidence in the economy, it's crucial to have a plan in place to help bridge the gap and build long-term financial stability.

It all starts with a budget

You've likely heard the importance of having a budget. However, very few people actually know where every dollar goes. Once you know where your money is going, you can determine the best use for each dollar.

Start by listing essential expenses, such as groceries, rent/mortgage payments and debt. Then, identify and trim back unnecessary spending, such as dining out and subscription services.

Your budget can also be used to achieve savings goals and debt repayment, even during periods of inflation. Carving out money for emergency savings or high-interest debt payments will help ensure you're saving or paying off debt at a rate you can actually afford.

This will help you feel more in control during a time when it feels like so much is out of your control.

Look to boost your income

If you build your budget and realize you need additional income, or want to boost your savings, look for opportunities to stretch your income. The gig economy is booming right now with services like Uber, DoorDash and Instacart.

Typically, these jobs are very flexible, allowing you to work as much or as little as you'd like. Even an extra $100 to $200 can help offset price increases or provide a nice contribution to your savings account.

You can also look for ways to maximize your current employer's benefits. Some companies offer commuter stipends, wellness reimbursements or education credits that can reduce out-of-pocket costs.

If you're struggling financially, don't be afraid to have a conversation with your employer. See what benefits you may qualify for, or consider asking for a raise.

If your company offers health savings accounts or flexible spending accounts, take advantage of those, too. Take this time to review your tax withholdings and adjust them, if needed, to ensure you're not giving the government an interest-free loan.

Put a lid on your expenses

During periods of inflation, you also want to be strategic in how you manage your expenses. When it comes to recurring bills, including internet, insurance premiums, phone service or other utilities, call providers for discounts.

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After explaining your situation, you might find there are loyalty programs you're eligible for, or you may be able to negotiate a lower rate. Even a small reduction adds up.

Grocery costs have also become a burden for families. To cut costs, consider batch cooking, swapping name brands for generics or growing some of your own produce.

It's also important to prioritize paying off your debt. Consider utilizing the avalanche or snowball methods to pay off debt. The sooner it's paid off, the more money you'll have to allocate elsewhere.

Be ready for an emergency

It's also important to protect your purchasing power. Building an emergency fund, like mentioned above, can help provide a cushion for unexpected costs and prevent you from charging up your credit card.

If you have savings, consider putting some of those funds into a high-yield savings account or investing it to maximize those dollars.

Living through financial challenges can be extremely stressful, especially when it feels like so much is out of your control.

However, finding ways to earn more money, cut spending and grow your savings are the best lines of defense.

Taking these steps to build financial stability will help you become more resilient to economic challenges.

Brad Clark is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Solomon Financial and CoreCap Advisors are separate and unaffiliated entities.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The latest Consumer Price Index (CPI) report showed that President Donald Trump's tariff policies continue to have a moderate impact on cost pressures, but the Federal Reserve is still expected to lower the federal funds rate when it meets next week.

According to the Bureau of Labor Statistics, headline CPI was up 0.4% month over month in August, higher than the 0.2% rise seen in July and the 0.3% increase economists expected.

The CPI was 2.9% higher year over year, a quicker pace than the month prior and the largest annual increase since January. Still, the results arrived in line with estimates.

Shelter was the "largest factor" behind the monthly increase in headline CPI, according to the BLS, up 0.4% from July to August. Energy costs were also on the rise last month, up 0.7% as gas prices jumped 1.9%.

Core CPI, which excludes volatile food and energy prices and is seen as a better measure of underlying inflation trends, was up 0.3% month over month and 3.1% year over year. Both figures matched what was seen in July and were on par with economists' forecasts.

"We continue to expect the Fed will cut rates next week due to weak labor market data and think it could follow this up with further easing in October," says Simon Dangoor, head of Fixed Income Macro strategies at Goldman Sachs Asset Management.

Dangoor adds that while "near-term inflationary pressures remain high, and further strong readings are likely in the coming months as businesses run down inventories and pass on cost rises, the Fed is likely to draw comfort from anchored inflation expectations and the absence of overheating in the labor market, which reduce the risks of second-round effects."

According to CME FedWatch, futures traders are now pricing in a 91% chance the Fed will issue its next quarter-point rate cut at its meeting next week, up from 86% one month ago. The betting odds are for two additional cuts by the end of the year.

With the August CPI data now in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for investors going forward.

Experts' takes on the August CPI report

"Thursday's CPI was in line with expectations and will not derail the Federal Reserve's expected rate cut at the September meeting. It's clear that inflation is relatively calm, which gives the Fed the flexibility to focus more on stemming ongoing weakness in the labor market. While inflation is still running above ideal levels, the full employment portion of the Fed mandate is carrying much more weight." – Skyler Weinand, Chief Investment Officer at Regan Capital

"Right now, inflation is a key subplot, but the labor market is still the main story. Today's CPI may appear to offset yesterday's PPI, but it wasn’t hot enough to distract the Fed from the softening jobs picture. That translates into a rate cut next week – and, likely, more to come." – Ellen Zentner, Chief Economic Strategist for Morgan Stanley Wealth Management

"The last bolt on the gate has fallen out and the rate-cutting horse is about to leave the barn. The Fed's path is clear in the short run, but over the medium term, the fact that core inflation is running quite a bit higher on a month-over-month basis is going to complicate matters and the market knows this. Watch the market reaction today, because all things being equal, a rate cut should be very bullish for the market, but the 0.4% month-over-month inflation rate is much too high for a sustained rate cutting cycle and it will now be an issue of how many more times can the Fed cut if inflation does not head toward their 2.0% year-over-year target." – Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management

"For the first time in a long time, CPI is being overshadowed on its release day by another data series: initial jobless claims. A spike in initial jobless claims to the highest level in 4 years helped briefly push the 10-year Treasury below 4% this morning, despite a larger-than-expected increase in the consumer price index. This dynamic illustrates the Fed's focus on the 'maximum employment' half of the dual mandate, with today's inflation print not hot enough in our view to derail a 25 basis point interest rate cut at next week's FOMC meeting." – Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments

"In today's numbers, we are seeing some impact from tariffs, especially with higher prices on cars and clothes. A sticky category not as connected to trade is insurance which we expect to weigh on inflation for the next few months. The hot inflation print will not likely change the Fed's plan to cut rates in September but it's possible the Fed will hold in October if inflation expectations no longer look well-contained." – Jeffrey Roach, Chief Economist for LPL Financial

"As expected, consumer inflation rose to the highest level since January, driven by price increases in shelter and food. There was not much surprising in the report, but the increase in food prices happened at the fastest pace so far this year. Housing has been a consistent source of inflation. Much of this year, Chair Powell has noted that risks to price stability and full employment were equally balanced. After the meaningful jobs revision last week, many believe that the risks to full employment now outweigh the risks to prices. The Fed probably sees that as well, but today's inflation report likely means a modest 25-point decrease rather than a larger cut." – Scott Helfstein, Head of Investment Strategy at Global X

"Inflation is in line with expectations but still running hot. Core CPI at 3.1% is still stubbornly high, and while in-line expectations set us up for a rate cut in September, I believe the market pricing in 3 is too much given the performance of equity prices and high overall inflation. Watch out for developments in the Middle East. Higher oil prices can put the Fed in a tough position when we already saw higher food and shelter prices." – Jason Barsema, Co-Founder and President at Halo Investing

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When crafting a long-term plan, it's easy to focus on the numbers that feel solid — how much you earn, how much you save and how much you think you'll spend in retirement.

But the silent force of inflation is quietly eroding those numbers year after year.

Almost everyone understands the theoretical effects of inflation. They know that their Friday night pizza is $3 more this year than last, or those new tires on the car seem "so expensive" compared with the last time you replaced them.

However, understanding what inflation is, compared with planning for it, are two very different things.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

As a financial planner, I often find that inflation is underestimated in planning conversations — especially when forecasting for retirement income, education funding or when estimating your required return on an investment portfolio.

Overlooking these powerful effects can lead to critical assumption errors in a financial plan, which often appear when it's far too late to course-correct.

Inflation's slow, relentless effect

Consider this: A retiree today who requires $100,000 to maintain their standard of living will need almost $165,000 in 20 years to cover expenses, even if inflation averages just 2.5%. This climbs to nearly $210,000 per year over 30 years.

This is the slow, relentless compounding effect of inflation — a force that can turn a plush retirement portfolio into a tight budget by your 80s.

Because of this, you must account for withdrawal rate plans. If you're withdrawing 4% from a $2 million portfolio, that's $80,000 per year.

But if you're increasing those withdrawals annually for inflation, as most retirees will need to do, your portfolio will experience greater strain.

Not only are you drawing down your capital, but you're also increasing distributions each year, expanding the risk of running out of money during your lifetime.

This leads to an important and often overlooked concept in investing called the real rate of return. Real return is your investment return after inflation.

Many investors fixate on achieving a 6%, 7% or 8% average return, but what truly matters is whether those returns outpace both inflation and withdrawals.

Suppose your portfolio earns a nominal 6% rate of return annually. If inflation is just 2.5%, your real return is only 3.5%. If you're withdrawing the standard 4% per year in retirement, you're depleting your principal, even with good market performance.

This is why maintaining an appropriate level of return, especially in retirement, is important.

One must resist the urge to invest overly conservatively in these years, instead focusing on constructing a portfolio designed to not just grow, but grow faster than both inflation and withdrawals.

Consider education strategies

Aside from retirement, things can really go awry when planning for education expenses. If you have children or grandchildren, education funding is likely one of your financial priorities.

The problem is this — education costs have experienced far higher inflation rates than the consumer price index (CPI) over the past several decades.

According to the Education Data Initiative, the average annual increase in public undergraduate tuition has averaged nearly 6% per year in the last three decades, well above the 2% to 3% average inflation rate for consumer goods over the same period.

This means a newborn today might face annual tuition costs well into six figures. Many families save into 529 plans or other accounts with the best intentions, but fail to adjust contributions for education-specific inflation, often leading to a shortfall when tuition bills come due.

Let's take the example of our newborn from above. If the parents figured annual tuition of $50,000 in today's dollars and assumed a standard 2.5% inflation rate on college expenses, they would have planned for a freshman-year tuition bill of just under $80,000.

However, if tuition inflation ran closer to 5%, that first-year bill would be more than $120,000, woefully short of their intended target.

Projections need to be realistic

Another related phenomenon we often run into as planners is overconfidence in projected asset figures.

If we're doing our job right and assuming appropriate rates of return, future account values can seem incredibly large when compared with today's spending power.

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This can cause one to overestimate their future lifestyle affordability, leading to complacency in savings rates and investment allocations that are too conservative.

Seeing a projection that you'll have $3 million in retirement can feel comforting, but if you don't account for inflation, that number can be dangerously misleading.

A 40-year-old office worker planning to retire with $3 million at age 65 using 6% returns might feel as if they're way ahead of the game.

But if inflation averages 3% over that 25-year period, that $3 million will have only have about $1.5 million of spending power in today's dollars. That planned retirement at age 65 can quickly turn into age 75.

Final thoughts

Inflation is not a temporary headline.

Whether you're planning for a child's tuition or your own 30-year retirement, the key is to model inflation explicitly. It should never be an afterthought.

Inflation can quietly sabotage a well-crafted strategy if ignored, so clients and planners alike should be using realistic, category-specific inflation rates, as well as modeling variable inflation scenarios against periods of high inflation, like the 1970s or 2021-22, to stress-test their plan.

By integrating inflation-aware assumptions into your cash flow projections, adjusting your investment targets and ensuring your withdrawals are sustainable in real terms, you can preserve your purchasing power, reduce financial anxiety and bring greater resilience to your long-term plan.

Bennett Pardue, CFP® offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN), offers investment advisory products and services through Equitable Advisors, LLC, a SEC-registered investment advisor, and offers annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC in CA; Equitable Network Insurance Agency of Utah, LLC in UT; Equitable Network of Puerto Rico, Inc., in PR). Equitable Advisors and Equitable Network are affiliates and do not own or operate New Canaan Group. PPG-8270816.1 (Exp 8/29)

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The latest Consumer Price Index (CPI) report showed that President Donald Trump's tariff policies continue to have a moderate impact on cost pressures, although the overall data lifted expectations for a September rate cut.

According to the Bureau of Labor Statistics, headline CPI was up 0.2% month over month in July, slower than the 0.3% rise seen in June and in line with economists' estimates.

The CPI was 2.7% higher year over year, unchanged from the month prior and slightly below economists' projections for a 2.8% rise.

Shelter was the "primary factor" for the monthly increase in headline CPI, according to the BLS, up 0.2% from June to July. However, energy costs declined in July, falling 1.1% as gas prices dropped 2.2%.

Core CPI, which excludes volatile food and energy prices and is seen as a better measure of underlying inflation trends, was up 0.3% month over month and 3.1% year over year. Both figures were higher than what was seen in July, while the annual increase came in hotter than economists' forecasts.

"Inflation is on the rise, but it didn't increase as much as some people feared," says Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. "In the short term, markets will likely embrace these numbers because they should allow the Fed to focus on labor-market weakness and keep a September rate cut on the table."

Over the longer term, though, Zentner says that "we likely haven't seen the end of rising prices as tariffs continue to work their way through the economy."

According to CME FedWatch, futures traders are now pricing in a 90% chance the Fed will issue its next quarter-point rate cut at its September meeting, up from 86% one day ago and 57% one month ago. The betting odds are for two additional cuts by the end of the year.

With the July CPI data now in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for investors going forward.

Experts' takes on the July CPI report

"While one data point does not make a trend, two consecutive months of higher 12-month [core] inflation will make it difficult for the Fed to justify a rate cut at their September 17 meeting. We remain bullish on the S&P 500 index into year-end, but we do not expect a September rate cut unless the jobs market drops off drastically over the next 45 days. If the Fed has to choose between shoring up the labor market or fighting inflation, we believe they will opt to backdrop the labor market." – Larry Tentarelli, Chief Technical Strategist for Blue Chip Daily Trend Report

"Today's release showed less of a pickup in goods prices than some were expecting as the tariff pass-through is present but to a lesser degree than was seen in June. Given the uncertain and shifting tariff landscape that existed through the month of July and into August, we would be hesitant to read too closely into today’s release." – Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments

"The July CPI report came in broadly in line with expectations, reinforcing the view that inflation is under control, even if not quite at target. The headline print was contained by falling energy and gasoline prices, while services remained the primary driver of the overall increase. Meanwhile, core services inflation was driven by volatile components like airfares and medical care, categories that have a lower weight in the Fed's preferred PCE measure. In our view, the Fed will look through the noise in goods inflation and focus on the broader macro signals; labor market softness, consumer fatigue, and the risk that slowing growth could become deflationary over the medium term." – Daniel Siluk, Head of Global Short Duration & Liquidity at Janus Henderson Investors

"July's CPI figure came in in line with expectations, with core inflation at 3.1% year over year. The Fed is getting the data support that the tariff effect on price level will mostly be transitory. The Fed's policy stance is highly data-dependent, and with inflation contained and labor market softness increasingly evident in revised payroll data, the emphasis will now be skewed toward employment. In essence, this inflation print supports the narrative of an insurance rate cut in September, which will be a key driving force for the markets." – Alexandra Wilson-Elizondo, Global Co-CIO of Multi-Asset Solutions at Goldman Sachs Asset Management

"Although the Fed supposedly focuses more on the core number than on the headline number (in order to strip out the noisier components of inflation), we don't believe that this report will deter the Fed from cutting rates next month. More importantly, there is one more jobs report (on 9/5) and one more CPI report (on 9/11) before the Fed meets again and those reports will take on even more importance as the Fed decides whether to cut rates to preemptively support the labor market or whether the inflation reports are concerning enough that they feel like they need to sit on their hands and wait." – Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management

""So far, U.S. businesses have absorbed the tariff costs, as revealed in many corporate earnings reports. It's only a matter of time before tariff costs make their way through to consumers if businesses want to maintain margins and profitability. We expect at least two rate cuts between now and the end of the year. The Fed is under immense pressure to move off their holding pattern and the data is starting to align with a move towards lower interest rates, which would provide an insurance policy against a slowing economy." – Skyler Weinand, Chief Investment Officer at Regan Capital

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If you're exhausted by high grocery prices, you're not alone. Overall, food prices have surged 31% since 2019. While inflation has steadied somewhat, rising 2.4% year-over-year in June, that really only means your already-high grocery bill is getting higher — just at a slower pace.

When you zoom in on specific items, the story is more complicated. Overall food inflation might be dipping closer to the Federal Reserve's 2% target, but certain goods are still seeing double-digit inflation. According to the latest CPI data from the Bureau of Labor Statistics, egg prices are up 27.3% year-over-year, while coffee and ground beef are up 16.3% and 10.3%, respectively.

Rates were held steady, as expected, at the July Federal Reserve meeting, which concluded Wednesday.

Now, you might be wondering if there's any hope for an upcoming cut in the federal funds rate, and if a cut would bring grocery prices down. Here's a breakdown of the relationship between interest rates and food prices, along with a more in-depth look at why prices are so high and the future outlook for your grocery bill.

Does the federal interest rate impact grocery prices?

What impact, if any, federal interest rates have on grocery prices is tricky to pinpoint. The basic principle behind how the Federal Reserve works is that interest rates control the money supply. When rates are high, money is expensive to borrow, so consumers tighten their belts in an effort to spend only the cash they have on hand and avoid using credit or taking out major loans. When rates are low, the opposite happens.

In theory, then, high interest rates should curb inflation by decreasing demand as consumers spend less. In reality, the actual impact the federal funds rate has on inflation varies depending on the market you're talking about and the underlying causes of inflation.

In the case of groceries, the impact is, at best, subtle and indirect. No matter how expensive money is to borrow and no matter how high grocery prices get, people need to eat. While there are ways to save on groceries by shopping sales or opting for generic alternatives to name-brand products, there's only so much cost-cutting you can do here because you still have to eat.

That's led to a somewhat disturbing trend of more and more shoppers turning to buy now, pay later (BNPL) apps and services like Klarna or AfterPay to finance their grocery purchases. A recent LendingTree survey found that 25% of BNPL users are using the short-term loans to pay for groceries, citing the need to "bridge" the gap from one paycheck to the next.

On the business side, interest rates could indirectly affect grocery prices by raising the cost of the money retailers use to pay for inventory. If retailers are hit with higher interest rates on loans and credit used to keep shelves stocked, they may pass some of those higher costs on to you. But calculating just how much of today's sky-high grocery prices are the result of higher borrowing costs isn't straightforward and will vary from one retailer to the next.

To whatever extent higher borrowing costs are inflating grocery prices, a rate cut might help bring your bill down, assuming retailers choose to pass those savings on to you.

Why are groceries so much more expensive?

Even if interest rates are partly to blame for rising grocery prices, other factors have had a much bigger impact on your bill.

It's also important to keep in mind that while the federal funds rate can impact grocery prices, grocery prices also impact the federal funds rate. The Fed looks to prices and inflation to decide what to do to best help the economy. For example, they raised interest rates in the wake of the pandemic because prices were high.

With that in mind, here are some of the key drivers of past and future inflation on your grocery bill:

• Supply chain disruptions. The pandemic broke down already weak supply chains, creating shortages and sending prices soaring faster than they had since 1979. While things have since stabilized, an FTC report published last year found that retailers have kept their prices high despite no longer facing those same supply chain issues.
• Extreme weather. As the climate warms, searing heat and more frequent natural disasters are decimating crops worldwide. This can create a ripple effect of shortages, impacting not just the cost of that produce item, but any of the packaged foods that use that ingredient.
• Tariffs. It's hard to keep track of what's going on with President Donald Trump's tariffs. But, so far, shoppers have already seen costs go up on certain specialty foods like coffee, chocolate and produce that can't be grown in the United States. Depending on where trade negotiations end up, more foods could see tariff-related price increases or the ones already facing tariffs could become even more expensive.
• Farm worker shortages. One side effect of the Trump administration's immigration crackdown is a shortage of farm workers in the United States. According to the USDA, 42% of farmworkers are undocumented immigrants. With many either deported, detained or too scared to show up to work, crops are going unharvested. This will lead to a combination of food shortages and more dependence on imported crops (which may carry tariffs).

How to save on groceries

You might not have much control over macroeconomic policy or global weather patterns, but there are simple strategies you can use to counteract those soaring grocery bills.

Here are some of the most effective methods to try:

• Join your grocery store's loyalty program. These are often free to join and come with special deals and early alerts to upcoming discounts.
• Use cash back cards with elevated rates for groceries. While no credit card offers enough cash back to make up for the 31% inflation in grocery prices since 2019, some have surprisingly generous rewards, especially on groceries. Earning those rewards helps put some of that money back in your pocket. See our best cash back credit cards of 2025.
• Take advantage of deals to stock up on non-perishable items. If your favorite shelf-stable foods or household essentials are on sale, stock up. Just make sure not to stock up more than you can comfortably store at home.
• Plan meals with overlapping ingredients. You can often save by buying larger quantities of ingredients or at least minimize waste by using up what you've already bought. If you're buying a pound of carrots for a recipe that only needs one, look for another recipe to use up the rest of that bag.
• Join a warehouse club to take advantage of bulk discounts. Costco or Sam's Club are both known for everyday low prices on groceries and household essentials. If you haven't already joined one, do your research and compare the perks and products offered by each. You should also check which one has a location closest to you.

Like everyone else who needs to eat, we'll continue to keep an eye on grocery prices and look for ways to save, while remembering just how many factors go into the price of eggs.

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Question: I thought I'd be set, but my $3 million isn't buying the retirement I imagined. What should I do?

Answer: The larger a nest egg you have when you kick off retirement, the more comfortable your senior years are likely to be. Recent Northwestern Mutual findings point to $1.26 million as the ideal retirement savings target. However, Vanguard's latest data on retirement savings puts the average 401(k) balance among Americans 65 and over at just $299,442, while the median balance for that age group is only $95,425.

If you’re sitting on a $3 million nest egg, it’s fair to say that you not only have more savings than the typical retiree, but you should also, in theory, have plenty of options for stretching that money. If you use the popular 4% rule to manage withdrawals from your nest egg, that leaves you with an annual income of $120,000, not accounting for inflation adjustments or whatever monthly benefit Social Security pays you.

But what if you can’t help but feel that $3 million isn’t buying you the retirement you want? Maybe the cost of travel is more than you anticipated. Maybe you’re just too scared to spend your money in retirement and you’re limiting yourself because of that.

It’s important to get to the root of the issue and improve your retirement outlook. Here’s how.

Reassess your expenses

When you envision a certain retirement lifestyle, it can be tricky to adapt to a different one. But with a little flexibility, you might manage to not only stretch your nest egg further, but feel better about your financial situation on the whole, says Greg Giardino, CFP, CPWA, vice president and financial adviser at Wealth Enhancement Group.

“If you’re discovering your portfolio isn’t going as far as you would like it to go in retirement, your first place to turn to for reassessment should be your expenses,” he says. Giardino recommends making small, permanent spending cuts to the tune of 3% to 5% rather than a large, temporary cut.

“This is a more sustainable and realistic way to stick to a change in lifestyle,” he says.

Giardino recommends starting with discretionary expenses first, like travel, gifts and home improvements. From there, you can look at your recurring living expenses and see if there’s any wiggle room to lower them.

Get comfortable with spending

Unless you aim to live a truly extravagant lifestyle in retirement, there’s a lot you can do with $3 million. If you feel a nest egg that size isn’t cutting it, it may be that you do have enough money to cover your needs and wants, but you’re afraid to spend it.

As Giardino says, “Breaking the habit of saving for decades to now spending can be a difficult and scary adjustment. Reframe your thinking by focusing on why you saved diligently for all those years — to give yourself permission to spend and live the retirement that you deserve.”

If need be, Giardino says, work with a financial planner to establish a safe withdrawal rate. He also suggests starting with smaller portfolio withdrawals and increasing spending as your comfort level improves.

He also suggests setting intervals to re-evaluate your spending, whether semi-annually or annually. From there, he says, “You can conservatively increase the annual dollar amount you are spending by a few percentage points to encourage further spending.”

Faron Daugs, CFP, wealth adviser, founder and CEO at Harrison Wallace, has similar advice: “While $3 million may feel like more than enough for most retirees, today's economic challenges with inflation and higher interest rates are proving that may not be the case.”

He suggests using a strategy he calls the “retirement paycheck.”

“We set up a fixed monthly withdrawal from investment accounts to replicate the feel of a regular income,” he explains. “In tandem, we create a separate ‘personal dividend’ bucket for discretionary spending like vacations, a second home or hobbies. This structure brings discipline and reassurance but also grants permission to enjoy your wealth.”

Achieve your retirement goals

It’s natural to be worried about running out of money in retirement. But for some retirees, it’s not just a matter of fear — it’s a matter of guilt. Daugs insists it’s important to push those feelings aside so you can enjoy the money you worked hard to save.

“I had a retired client come in wanting to buy a boat,” Daugs shares. “He had more than enough savings but felt guilty about the purchase. We ran the numbers six different ways and eventually, what gave him comfort wasn’t just the math, but realizing he had earned the right to enjoy life. Over 10 years later, he still says it was one of his best decisions.”

You may be eager to not spend all of your money in retirement so you can leave an inheritance or reserve ample funds for your later years, when your health-care costs might increase. But there are ways to achieve these goals without denying yourself the retirement you’ve always wanted, and a qualified financial professional can offer guidance in that regard.

As Daugs says, “Retirement is not just about preserving capital. It’s about using it with intention and joy.”

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You've heard of the 'silver tsunami,' the surge in Americans reaching retirement age, leaving behind a depleted workforce. But there could soon be a reverse tsunami, where legions of retirees return to work to replenish rapidly depleting savings.

The work pivot is mainly down to a familiar problem — retirees are afraid of running out of money, with the issue so pervasive that 64% worry more about running out of cash than dying, according to a recent Allianz Life study. Add to the mix longer life spans, fewer company pensions, rising doubts over the future of Social Security, and a half-decade run of high inflation, and it’s no wonder that so many retirees are returning to the workforce, in some form.

According to a new Northwestern Mutual study, 40% of U.S. adults plan to work — or are already working — in retirement. That figure rises to 45% for millennials and 48% for Gen Xers, with the Baby Boomers marking the last U.S. generation demographic where most retirees say they won’t work in retirement.

Aside from financial reasons, more retirees say they’re returning to work to stay active and keep their mental skills sharp during retirement. And as longevity increases, that could be a lot longer than expected.

"I’ve found most retirees enjoy the time off from work for about two to three years, but then they start missing the routine, the friendships at work, and they often struggle to find their new purpose," said George McFarlane, president of 7 Waters Advisors in Longview, Texas. "I had a mentor tell me that he didn't retire, he retreaded. He said, 'I would rather wear out than rust out.'"

While many retirees seek jobs that emulate, or at least are tied to, their career years, seniors also look for jobs and gigs that offer a departure from their paycheck years.

"Retirees working in retirement find it a fulfilling way to scratch a creative itch they didn’t have the opportunity to indulge in during traditional employment," said Diana Kelly Levey, a Long Island, NY-based freelance writing business owner.

"Having a side hustle in retirement can also help supplement income, allow someone to pursue a dream (like seeing their name on a published article), sell something they've crafted or created, give structure to their days, foster a sense of purpose, and help one feel part of a community," she said.

Given the advanced age that may limit physical work or jobs requiring long commutes, some retirement side gigs are more suitable than others for retirees. The following gigs should be at the top of the list.

1. Plant a flag in the real estate market

You know the old saying: "Buy land because God isn’t making any more of it." So it goes for retirees with a penchant for sales, management and a side hustle.

"Getting involved in real estate in some way can be a great side gig for retirees," said Adam Hamilton, CEO at REI Hub in Richmond, Virginia. "There are a variety of different ways to do it, ranging from simply investing in REITs, to flipping homes, to buying properties and converting them into rentals, to turning a portion of your home into a short-term rental."

In real estate, you can be as hands-off as you want (for example, you could hire a property manager to take care of all of the logistics and day-to-day work), or you can treat it as a 'job' and be very hands-on. "Regardless, real estate investing can be a great way to earn a reliable stream of income, and it can give you a project to focus on in retirement," Hamilton said.

2. Get into content creation

Allen J. Wiener, a historian and author of the book David Crockett in Texas: His Search for New Land, said he decided to keep rolling as a writer in retirement, if at a slower pace.

"For years, I had been writing outside of my day job, which I enjoyed, but I couldn't make a living at it," the Florida-based retiree noted. "Once I retired, my days were free to do research, visit libraries, do phone interviews with people, and write during my most productive hours, rather than trying to do it at night when I was tired from working all day and taking care of household responsibilities."

Wiener said he continues to view publishing books and articles as very rewarding.

"It doesn’t pay much, but I am still interviewed about my work and quoted in the media," Wiener said. "Writing at my own pace also leaves my time flexible for other pursuits, such as travel."

Retirees don’t need to step too far outside their career specialties as a writer/content producer. Stepping into a content role as a newsletter publisher on a platform like Substack or as a product expert could be easier than you may think.

"As a writer, you can share expertise through weekly posts about gardening, investing, or industry insights," said Carrie Loranger, founder of Click Digital Publishing, in Mission Viejo, California. The earning potential for doing so ranges from $200 to $2,000 a month, Loranger said.

3. Be a business organizer

If you want to work from home part-time, say 10 to 20 hours a week, there’s a significant demand for office workers.

"Some digitally-savvy, organized retirees might find it rewarding to take on virtual assistant work, while some would like data entry or bookkeeping," said Kelly Levey. She noted that in these kinds of gigs, it's important to be clear about hours and expectations.

"But if you’re someone who prefers in-person work as a reason to get out of the home and need face-to-face interaction, you might be open to doing tutoring, working at a fitness center reception desk, walking a neighbor’s dog, or working at a community center."

4. Leverage your home maintenance and repair skills

Daniel Rushford, a Los Angeles, California, resident, is utilizing his fix-it skills for Airtasker, a task management platform that connects customers with skilled local helpers.

"Working in retirement through Airtasker has been completely different from when I was working full-time," Rushord said. "I choose my own tasks, set my schedule, and get to work with people in my community," Rushford said. He’s handled everything from furniture assembly to repairs and delivery tasks. "It keeps my mind sharp and gives me purpose without the stress of working full-time."

Task-mastering is perfect because Rushford can leverage skills he’s built over decades, whether it's handyman work, moving help, or organizing tasks, all while working entirely on his terms. "The beauty is that retirees often have time flexibility that younger workers don't, so we can take on those weekday tasks that others can't fit into their typical workday," he said.

5. Be an online expert

Retirees with solid institutional knowledge can sign up on a site like JustAnswer and make good money from the comfort of their own home.

Andy Kurtzig, founder and CEO of Just Answer, said: "Experts on JustAnswer.com who are verified and vetted and licensed in their profession or trade — from vets, accountants and lawyers, to dog trainers, RV mechanics and appliance repair techs — can make from $2,000 to $7,000 a month depending on the category and question volume. You can do the work anytime from anywhere, answering people’s questions from around the world."

Kurtzig cited one platform expert, a former therapist and longtime etiquette trainer, who’s also an expert in exotic bird health and behavior. "She uses the $1,500-to-$2,000 per-month income she generates through answering questions related to etiquette and avian health to fund her nonprofit sanctuary for exotic birds," Kutzig said.

He also points to a retired 62-year-old general contractor and home improvement expert on JustAnswer. "After retiring from his family business and having his children take over, he wanted a way to earn extra money while also still using his vast knowledge from his experience as a contractor/plumber/home builder/electrician," Kurtzig said. "So far this year, he’s earned over $27,000 working a couple of hours a day."

Should you set a work limit each week?

Retirees who work part-time in retirement say that laying down time guidelines is highly advisable.

"Even if you're working for yourself, set some limits on the time you spend working or volunteering," Weiner said. "Maintaining structure is important. There’s an excellent mental benefit to knowing you can occasionally relax, read a book, watch a movie during the day, or simply enjoy a happy hour beer with friends."

"As one doctor recently told me, it is good to pay attention to healthy habits, including finding productive activities, but you also need to live your life," he said.

Retirees also shouldn’t focus on how much they are working from an hourly standpoint; focus first from a financial perspective.

"Unless you feel like the side hustle or part-time job is impacting your life negatively and your health is deteriorating from it, retirement is about whatever you want it to be," Levey said. "It’s about checking in with yourself — and maybe loved ones from time to time — to explore if the side hustle is going well or if it’s interfering with the goals you initially had for retirement."

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Inflation is the monster in the closet for many investors, and that's why Treasury inflation-protected securities (TIPS) are objects of great interest lately. The government-guaranteed bonds are designed to beat inflation year after year, so they provide a measure of portfolio protection against rising prices — but they are no panacea, and they take some figuring out.

Still, they may be worth a look, as the worry over rising prices is palpable these days. According to the University of Michigan's April consumer confidence survey, Americans believed that inflation would average 6.5% over the next 12 months. That's the highest reading since 1981, and it's well more than twice the 2.4% rise in the consumer price index (CPI), the government's main inflation gauge, over the previous 12 months.

The angst is understandable. The inflationary impact of the Trump administration's tariff policy is uncertain, and the scars from the 9% inflation rate reached in June 2022 haven't faded. Inflation tends to be sticky — that is, prices that go up often don't go down. Even though the rate of inflation has fallen since its peak, prices are still up a cumulative 24% since March 2020, according to the CPI.

It's no wonder funds that invest in TIPS have seen net inflows of $9.2 billion over the past 12 months, according to Morningstar, the Chicago mutual fund tracker. If you're worried about inflation, read on to see whether TIPS are right for your portfolio.

How TIPS work

The government issues 5-, 10- and 30-year TIPS, which pay a fixed rate on a principal that adjusts in line with changes in the CPI.

As an example, let's look at a recent Treasury issue of 10-year TIPS. The annual fixed interest rate is 2.125%, payable every six months — a rate that's about as appealing as last week's oatmeal. The real attraction of TIPS is that the principal value of your bond can go up (or down) according to changes in the CPI.

Let's say that the CPI increases 3% in the 12 months after issue. The Treasury will then add 3% to your bond’s principal, boosting a $1,000 bond to $1,030, for example, and your interest payment from $21.30 to $21.94. (This simplified example illustrates an annual rate, but remember, TIPS pay twice a year.)

TIPS funds gained an average 3.4% in 2024, making them one of the best-performing bond fund categories — which is also an indication of how awful the bond market was in general.

And that brings us to our first caveat: "They are still bonds," says Thomas Urano, chief investment officer at Sage Advisory Services. Despite all their anti-inflation merits, TIPS prices will go south when the bond market does, at least partway.

If you own individual TIPS to maturity, price fluctuations won't matter much. You'll get your interest and principal as promised. If you sell your TIPS before they mature, however, you'll get whatever the market will pay, which could be more or less than the current rate of inflation.

Consider the following TIPS tips before you buy:

Watch out for falling prices. If we enter a period of falling prices — deflation — then the Treasury would subtract that amount from your bond’s principal value. Deflation is unusual, but not unknown. The CPI went negative in 2009 and 2015. But even if the CPI deflates for the life of the bond, you're guaranteed your full initial principal at maturity.

Understand the real yield. The real, or inflation-adjusted, yield from TIPS is a gauge of future inflation expectations.

For example, if the 10-year TIPS yield is 2.13% and the 10-year Treasury note yield is 4.35%, then Wall Street is expecting an average 2.2% inflation rate over the next 10 years. The TIPS breakeven — the difference in nominal yields between TIPS and Treasury securities of comparable maturities — has ranged between 0.04% and 3.02% since 2023, so a 2.2% real yield is a relatively high return.

Be ready for Uncle Sam to take a cut. Your interest is subject to federal income taxes, though not state or local taxes.

But there’s a catch: You also owe tax on the inflation adjustment to your principal in the year you receive it — even though you don’t realize that income until the bond matures or you sell it. That makes TIPS in general, including TIPS funds, best used in a tax-deferred account.

How to buy TIPS

You can buy individual TIPS in $100 increments for free from the Treasury at Treasury Direct. You can also buy TIPS through your brokerage. Or you might prefer using mutual funds and exchange-traded funds.

Short-term funds invest in TIPS with maturities of five years or less, according to Morningstar. These funds tend to be less volatile than longer-term TIPS funds, says Chun Wang, portfolio manager at the Leuthold Group, a money management firm.

As with all funds, you should prefer those with low expenses — 0.70% or less. Consider T. Rowe Price U.S. Limited Duration TIPS Index (TLDTX). The fund, which charges a 0.21% fee, has outpaced its peers over the past 12 months with an 8.2% gain.

Also consider American Century Short Duration Inflation Protected Bond (APOIX), which charges 0.70% in management fees. The fund has beaten the average short-term TIPS fund over the past one- and five-year periods. (Returns, prices and other data are as of April 30.)

ETFs worth a look include iShares 0-5 Year TIPS Bond (STIP), which weighs in with a 0.03% expense ratio, and Vanguard Short-Term Inflation-Protected Securities (VTIP), which charges 0.03% a year. Both have beaten the average ETF in their category over the past three- and five-year periods.

TIPS funds with a longer-term orientation can be riskier than their short-term brethren.

"They are definitely more sensitive to interest rates," says Sam Millette, fund manager at Commonwealth, an investment advisory firm.

Specifically, these funds are likely to post a bigger loss than short-term TIPS funds during a period of rising interest rates. (Bond prices and interest rates move in opposite directions.) A TIPS interest payment will offset some, but not all, of the pain of rising interest rates. In 2022, for example, the average TIPS fund lost 9.0%.

Still, if you have a longer investing time horizon, then a longer-term TIPS fund is a good choice, says Millette. Schwab U.S. TIPS (SCHP), which tracks a Bloomberg U.S. TIPS index, invests in a full range of maturities. The portfolio recently had an effective maturity of 7.1 years and a duration of 6.4.

Duration is a measure of interest-rate sensitivity; a duration of 6 implies a 6% loss in net asset value if interest rates rise one percentage point. The ETF finished in the top half of its category for nine of the past 10 calendar years (the exception was 2022), and it charges an expense ratio of 0.03%.

Finally, don’t wait until the CPI has already soared to buy TIPS. Remember that TIPS are priced according to what Wall Street expects for inflation over time, not today’s inflation rate. Those who bought TIPS funds during the 2022 inflation spike took a big hit because of the higher interest rates that tend to follow such consumer price surges.

For that reason, says Sage Advisory’s Urano, "TIPS are not a cure-all."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Did you have “global pandemic” on your bingo card of possible retirement risks? The reality is that risks abound, and you can’t always see them coming.

Still, a proactive stance can help you get through them — and thrive.

Here are the top risks retirees need to be aware of and how to guard against them.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

1. Outliving your savings

Americans are living longer than ever. While most would welcome increased longevity, it also means you’ll need money to fund additional years of retirement. What can you do to ensure your savings last?

• Work longer. Working just a few years longer can help you save more money, while also delaying your need to tap your nest egg.
• Part-time work. Instead of leaving work behind completely, consider taking a part-time job to bring in some income so your money can continue to grow.
• Delay Social Security. If your health is good and you have other income sources now, you can get a significantly bigger paycheck by waiting on Social Security.
• Consider an annuity. A lifetime income annuity provides you with a guaranteed source of income you can’t outlive.

2. Encountering sequence of returns risk

Your chances of running out of money are much less if you retire during a booming market and your portfolio is up. But what happens if you retire during a market decline? It’s a little-known phenomenon known as sequence of returns risk.

Making withdrawals from your portfolio when it’s down forces you to sell more investments to come up with the amount you need. Not only does that drain your portfolio faster, but it leaves you with fewer assets with which to participate in an eventual rebound.

A wealth adviser can work with you in the years leading up to retirement to create a pool of money for your immediate cash needs so you won’t need to make withdrawals if the market is down.

The chart below illustrates what can happen to a hypothetical portfolio based on different returns at different points in time.

3. Rising health and medical expenses

Health care is one of the biggest retirement expenses, but many people overlook it when planning for retirement.

Health care costs are expected to rise about 7.5% in 2025, a near-record trend that is driven by inflationary pressure, prescription drug spending and behavioral health utilization.

Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.

To ensure that health care costs don’t overwhelm your retirement, pay attention to these things:

• Health savings accounts (HSAs). You can build up an account for health-related expenses by saving in tax-advantaged HSAs in the years before retirement.
• Health insurance. If you retire before age 65, you’ll need to line up health insurance coverage. Some options to consider: COBRA through your previous employer, a health exchange plan or a high-deductible plan paired with an HSA.
• Medicare. Medicare won’t cover all your health care expenses in retirement. In addition to Medicare, which covers some doctors’ visits and hospital stays, you’ll want to purchase supplemental plans to pay for out-of-pocket costs.
• Long-term care insurance. The possibility of needing long-term care is higher than you might think. Long-term care insurance can pay for care when you’re no longer able to care for yourself. The earlier you buy it, the more affordable the premiums will be.

4. Letting inflation erode your purchasing power

It may seem harmless in small doses, but over time, inflation can erode your purchasing power. Think of it as a silent thief stealing the value of your money. While Social Security has automatic cost-of-living adjustments each year, it’s up to you to make sure the rest of your money keeps up with inflation. These strategies might help:

• Invest for growth. Over time, stocks have shown the ability to outpace inflation. Even in retirement, it’s important to keep some of your portfolio invested in stocks.
• Inflation-proof your investments. Consider inflation in the context of your investment selection and work with your financial adviser to adjust based on your situation.
• Explore annuities. Some annuities come with payments that increase with inflation, providing a steady income stream that retains its purchasing power over time.

Retirement is an exciting chapter in life, offering countless opportunities for personal fulfillment and quality time with loved ones.

However, concerns about financial security can create anxiety and keep you up at night.

The good news is that with a little bit of planning, you can pave the way for a smooth transition into retirement.

Related Content

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• Three Essential Estate Planning Steps to Protect Your Nest Egg

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you have a Health Savings Account (HSA) or are thinking about one, the IRS has announced the new contribution limits for 2026. These annual inflation adjustments are designed to keep pace with rising costs.

However, it's worth noting that HSAs might not be right for everyone.

So, as you plan your finances for next year, it’s good to know the new limits and the pros and cons of an HSA. Let's dive in.

2026 HSA and HDHP limits: What’s new?

For 2026, the IRS has set the following annual HSA contribution limits:

• Individual (self-only) coverage: $4,400 (up from $4,300 in 2025)
• Family coverage: $8,750 (up from $8,550 in 2025)
• Catch-up for age 55+: $1,000 (unchanged)

Remember: To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP).

The IRS also adjusted the minimum deductible and maximum out-of-pocket amounts for HDHPs for 2026:

• Minimum deductible: $1,700 for individuals, $3,400 for families
• Maximum out-of-pocket: $8,500 for individuals, $17,000 for families

Key benefits of an HSA

HSAs are popular for their triple tax benefits. Basically, contributions are made pre-tax, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free.

Unlike flexible spending accounts (FSAs), HSA balances roll over from year to year and can be invested, allowing funds to grow for future needs. You own your HSA and keep it and the funds in it when you leave your job.

After age 65, you can use HSA funds for non-medical expenses without penalty (though you’ll pay regular income tax on those withdrawals).

Is there a downside to an HSA?

However, HSAs are not without their downsides. The most significant is the requirement to enroll in a high-deductible health plan. While those plans often have lower monthly premiums, they come with higher upfront costs if you need care.

For instance, next year (2026), you’ll need to pay at least $1,700 out of pocket before your insurance starts to pay for most services, or $3,400 for a family. (In many cases, the deductible limits are much higher than those minimums.)

Those out-of-pocket costs can be a significant financial strain for people with ongoing health needs or limited savings. Some people might even delay necessary care due to concern about upfront costs.

There are also strict rules about how HSA funds can be used.

• If you spend HSA money on anything other than qualified medical expenses before age 65, you’ll face income tax and a 20% penalty on the amount withdrawn.
• That's a steeper penalty than what applies to early withdrawals from many retirement accounts.
• Over-contributing to your HSA can also result in tax penalties.

Managing an HSA requires record-keeping. You should keep receipts and documentation to show that withdrawals were for eligible expenses. You could owe taxes and penalties if the IRS audits you and cannot provide proof.

Eligibility is another limitation. You can’t contribute to an HSA if you’re enrolled in Medicare or are claimed as someone else’s dependent. You also can’t have a general-purpose FSA at the same time as an HSA.

Finally, the full benefits of an HSA are only realized by those who can afford to contribute and invest consistently. Setting aside enough to take advantage of long-term tax savings may be challenging for people living paycheck to paycheck.

HSA tax planning for 2026: Bottom line

As you review your options for the coming year, weigh the practical considerations involved with HSAs.

The new limits for 2026 offer more opportunity to save, but only if the structure of an HDHP and HSA rules fit your health and financial situation.

Consult a trusted and qualified financial planner or tax professional if you're unsure.

Read More

• Tax Benefits and Hidden Costs of HSAs
• 401(k) and IRA Contribution Limits for 2025
• Types of Income the IRS Doesn't Tax
• 2026 IRA and 401(k) Contributions Are Set: What to Know Now

Recently, we wrote about the results of the Retirement Confidence Survey, conducted annually by the Employee Benefit Research Institute. EBRI followed up with a deeper dive into spending trends among retirees with its 2024 Spending in Retirement Survey.

I spoke with Bridget Bearden, research and development strategist with EBRI and author of the study, about its conclusions.

Your survey uncovered several 'concerning trends.' What were they?

We asked retirees how their current life aligns with their pre-retirement expectations and how satisfied they are with life in retirement. In each case, their responses were lower than in 2020 and 2022.

At the same time, 31% of retirees said their spending was higher than they could afford in 2024, up from 17% in 2020 and 27% in 2022.

What is behind the trends?

Three factors:

• Lack of sufficient savings
• Inflationary pressures
• Rising credit card debt

Half of respondents said they had saved less than what was needed for retirement.

When we asked an open-ended question about why they rated their satisfaction with retired life as they did, inflation was a major reason.

Some typical responses: “Inflation is killing me,” and “Inflation has caused me to tighten up and forgo the things I wanted to do.”

So people have taken on more credit card debt?

Among the 63% of retirees who reported having outstanding debt, 68% had credit card debt. That was up from 43% in 2020 and 40% in 2022.

On a more positive note, only one in 10 respondents described their overall debt load as unmanageable or crushing.

You also asked about emergency savings

Overall, 59% of retirees said they have three months of emergency savings, down from 69% in 2022.

Yet 36% have experienced unexpected spending needs since retiring. The most frequently cited reasons were higher-than-expected housing or healthcare costs.

Number three on the list: children or grandchildren who needed help.

But home equity has risen significantly

Respondents reported an increase of 47% in the median value of real estate equity since the start of retirement. That aligns with the growth in home values during the same period, which was a median of seven years.

At the same time, their newfound real estate wealth did not make them more willing to take risks with their financial assets.

What are their main sources of income?

Retirees in our survey were between the ages of 62 and 75, and 83% reported receiving income from Social Security.

Another 39% said they are receiving guaranteed income through a workplace pension or annuity, with pensions more prevalent among retirees from the public sector.

On the other hand, 20% reported receiving income from an individual retirement account, and IRA income was more common among private-sector retirees.

Are there bright spots in the study?

Retirees who reported more-positive outlooks on spending and well-being cited several factors:

• Longer tenure with their employer
• Fewer employers over a career
• More years participating in a retirement plan
• Sources of guaranteed income in retirement

How about non-financial factors?

Health is one of the leading drivers of satisfaction, along with independence, a strong social network and a feeling of preparedness. Married people generally report more social interaction and better financial situations.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Retirement security requires long-term planning, but inflation can complicate these efforts. While the Federal Reserve usually targets an inflation rate around 2%, the U.S. has experienced seven periods of inflation rates exceeding 5% since World War II, according to Modeling the Impact of Inflation on Retirement Savings Portfolios, a report by the Society of Actuaries (SOA).

High inflation can harm retirees’ buying power. Staying well-informed about investment choices, both during the planning phase and after retirement, can help protect against inflation risks.

Snapshot: Inflation’s impact on retirement

Recently, the SOA Research Institute released initial findings from its biennial Retirement Risk Survey. Since 2001, this survey has explored how retirees and pre-retirees understand and manage risks in retirement, including the impact of inflation. The 2024 survey included more than 2,000 U.S. respondents between the ages of 45 and 80.

Respondents were asked how rising costs of different categories of expenses impacted their ability to manage their retirement savings. The survey found that 51% of pre-retirees and 35% of retirees reported being impacted by higher food and daily living expenses. Additionally, 45% of pre-retirees and 29% of retirees reported that rising utility expenses had impacted their retirement funds.

Respondents were also concerned about inflation’s impact on the overall value of their retirement savings, with 78% of pre-retirees and 58% of retirees expressing concern about savings keeping up with inflation.

Recent inflation trends have also impacted pre-retirees’ retirement planning strategies. More than half (51%) of pre-retirees who make less than $50,000 annually and nearly half (47%) of those making $50,000 to $100,000 have considered taking on another job or acquiring additional sources of income to help save for retirement.

Additionally, about 40% of pre-retiree respondents across income brackets have considered delaying retirement or returning to work to help save for retirement.

Planning for inflation: Asset allocation basics

Most private-sector employers in the U.S. have moved away from defined benefit plans, like pensions, to defined contribution plans, like 401(k)s. This has shifted the responsibility to individuals to choose asset allocations that help grow retirement savings and minimize the risk of outliving their funds once they have retired.

The Retirement Risk Survey found that inflation affects many retirees’ finances, so being strategic in choosing assets is important for achieving retirement security. Different types of assets offer varying degrees of inflation protection:

Stocks. These assets, also called equities, are often considered one of the most effective options for long-term inflation protection. The companies issuing the stocks often are able to increase prices for their goods and services and maintain revenue streams that can outpace inflation.

However, stocks may not prove to be an effective short-term option to protect against inflation because stock returns often decline when inflation rises.

Treasury Inflation-Protected Securities (TIPS). Designed to protect investors from inflation, TIPS adjust to changes in the Consumer Price Index (CPI), which is a measure of inflation. This ensures investors get returns that reflect the inflation rate. Interest payments on TIPS also increase with inflation, offering another layer of protection.

However, investors should consider the trade-off of the inflation protection of TIPS against potentially lower returns than other asset classes.

Real estate. Historically, property has provided some degree of protection against inflation because property values and rents often go up when prices rise. However, such protection may also depend on other factors, such as the property’s location, type and overall economic conditions.

Bonds. These assets generally do not provide much protection against inflation, though there may be exceptions when certain strategies are used.

A high-level overview

The SOA Research Institute recently studied how inflation may affect different asset allocation strategies through a basic projection model. Retirement planning happens in two phases: accumulation and decumulation.

The accumulation phase is the period when individuals save and invest for their retirement. It’s common for people to invest in a higher percentage of stocks during this phase.

The period when people have retired and begin drawing from their retirement fund is called the decumulation phase. While the main goal for the accumulation phase is growth, the decumulation phase is more focused on a stable income, risk management and ensuring retirement savings last throughout life.

The Modeling the Impact of Inflation on Retirement Savings Portfolios report looks at how inflation may affect strategies in both phases. Instead of trying to determine the most optimal strategies, the study highlights how inflation can interact with a variety of investment factors, leading to different outcomes based on strategy choices.

History has shown that we can expect periods of high inflation. So it’s important to be aware of strategies that may protect retirement savings from periods of rising prices and other retirement risks. The SOA Research Institute offers additional resources on inflation’s effect on retirement planning.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As if grocery prices weren’t bad enough, they are about to get costlier — and it’s all due to tariffs.

President Donald Trump has been on and off with imposing 25% tariffs on goods imported from Mexico and Canada, though he's doubled the tax on Chinese imports. The added costs, which domestic companies pay, are expected to be transferred to consumers in some capacity — leading to price hikes on everyday goods, from your car to food and beverages.

The tariffs on our largest trading partners are separate from the 10% duty imposed on China a month ago. Together, the duties on all three countries will impact about a quarter of the total consumer spending in the U.S by 0.81% if businesses pass along half of the costs or 1.63% if costs are fully transferred, according to the Federal Reserve Bank of Atlanta.

Mexico and Canada tariffs alone will contribute to about 45% of the total price effect, the study found. That’s not counting retaliatory measures, which are already upon us.

Here’s where you can expect prices to increase, starting with the food at your table.

Related: Check out Kiplinger's tax blog for the 2025 filing season. We're providing live updates, news, information, and commentary to help you navigate your taxes.

Mexico prepares countermove

Mexico President Claudia Sheinbaum announced Tuesday that the country would respond to 25% tariffs imposed by the U.S. with targeted retaliatory duties on U.S. goods. More information will be provided in the coming days.

• As reported by Kiplinger, Sheinbaum and Trump had reached a deal to pause 25% tariffs on Mexico imports to the U.S. on Feb. 3 for a month.
• Sheinbaum agreed to send 10,000 national guards to the border to prevent the flow of migrants and illicit drugs to the U.S.

Per the New York Times, Sheinbaum said that both countries had vowed to work together to not only address drugs moving north, but illegal guns entering Mexico.

On March 3, the Trump administration shared a statement addressing its move to lift the pause on Mexico and Canada’s tariffs on imports. Saying that both countries had failed to adequately address the fentanyl crisis.

The White House called Mexico drug trafficking organizations “the world’s leading fentanyl traffickers,” it also accused Canada of having “super labs” that produce the drug.

Sheinbaum told reporters that the White House statement regarding Mexico was “offensive, defamatory, and without substance.”

The impacts of tariffs, however, will be seen on your grocery list. Mexico is the largest supplier of fresh fruit and vegetables to the U.S. According to the latest government data, the United States is the destination of 91% of its annual horticultural exports.

To grasp the numbers: In 2023, Mexico supplied 63% of U.S. vegetable imports and 47% of fruit and nut imports, according to the U.S. Department of Agriculture (USDA).

Canada retaliates with tariffs on thousands of U.S. goods

Trump imposed 25% tariffs on imported goods from Canada on March 4, but limited the duty to 10% on Canadian energy.

As a countermeasure to Trump’s tariffs on Tuesday, Canada imposed 25% tariffs on $155 billion worth of U.S. goods. This will affect goods from meat and poultry, to milk products, nuts, oil, pasta, sugars, and chocolate — just to name a few.

Wines, certain beverages, and tobacco also make the list. So do soap detergents, pre-shave, and shampoo. Another big one is plywood, which is primarily used by U.S. homebuilders and imported primarily from Canada.

Outgoing Canadian Prime Minister Justin Trudeau responded with 25% tariffs on $30 billion worth of U.S. goods effective March 3, followed by the remaining $125 billion of products in the next 21 days.

“Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau said in a press statement.

Trudeau added that the United States’ tariffs were not justified and would violate the trade agreement negotiated by Trump during his first term. This refers to the U.S.-Mexico-Canada Agreement (USMCA).

Additionally, Canada’s prime minister said that Trump’s trade war meant to crack down on fentanyl trafficking was “completely bogus,” alleging the U.S. wants to collapse Canada’s economy in a bid to annex the country and make it the 51st state.

Separately, Ontario Premier Doug Ford told local reporters he is prepared to pull the plug on electricity exports to the United States. New York, Michigan, and Minnesota are Ontario’s largest customers.

“Your government has chosen to do this to you,” Trudeau said in an address to the American people in a press conference. “As of this morning, markets are down and inflation is set to rise dramatically all across the country. Your government has chosen to put American jobs at risk at the thousands of workplaces that succeed because of materials from Canada or because of consumers in Canada or both.”

“They have chosen to raise costs for American consumers on everyday essential items like groceries and gas. On major purchases like cars and homes, and everything in between,” added Trudeau.

China slaps counter tariffs on U.S. farmers

The Trump administration doubled the tariff on Chinese products to 20% on March 4, up from 10% a month ago.

Beijing retaliated with tariffs on up to 15% of U.S. agricultural and food exports. The duties will impact about $21 billion in U.S. goods exported to China.

China was the top destination for agricultural exports from the United States in 2023, followed by Mexico and Canada. The U.S. exported $33.7 billion worth of agricultural goods to China two years ago, according to the USDA.

The U.S. tends to export more non-manufactured goods such as rice, wheat, and oilseeds such as almonds.

‘Tariffs are really going to hurt our economy’

As an example of the ripple effect of Trump’s tariffs on the U.S. economy, even local producers will feel the impact.

Vermont, known for its maple syrup, is the leading producer of the good in the country. Some 54% of all maple in the U.S. comes from the state’s 8.4 million taps. That’s followed by New York, which produces 846,000 gallons and Maine, which offers just 701,000 gallons.

In 2024, Vermont produced 3.1 million gallons of maple syrup. But its success is not on its own.

Sugar makers are bracing for the fallout of Trump’s 25% tariffs on Canada, because most of the equipment needed to produce syrup is manufactured primarily from our northern trade ally. With new 25% tariffs, the tax could trickle down to higher prices for sugar at the grocery store for you.

“These tariffs are really going to hurt our economy in Vermont, and the impacts will be far-reaching,” said Senator Peter Welch (D-Vt) in a statement. “President Trump is singlehandedly raising costs for Vermonters—from the food on our table, to our energy bills, to the materials and equipment our home construction companies and manufacturers need.”

Welch is one of the co-sponsors of the Protecting Americans from Tax Hikes on Imported Goods Act, which aims to limit the authority of the International Emergency Economic Powers Act (IEEPA), which allows the President to enact immediate tariffs after declaring a state of national emergency.

What’s next

The United States is in the throes of a trade war, ignited by President Donald Trump. As China, Canada, and Mexico retaliate with counter tariffs or potential sanctions on the U.S., consumers can expect to feel some financial strain in upcoming weeks.

As reported by Kiplinger, tariffs on imported goods are taxes paid by domestic companies. These added costs are generally passed down to consumers, like you, so the company can still make a profit.

Economists warn that tariffs could make your shopping pricier from the cost of clothes and food, to suitcases and furniture.

Stay tuned to our coverage as we explore how the new tax can impact local businesses and producers, and consumers.

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A hotter-than-expected reading on U.S. consumer price inflation means the Federal Reserve will likely push back its next interest rate cut to the end of 2025 or next year, experts say.

Further disappointing prints could even put an interest rate hike into play before year-end, they add.

For the record, headline January CPI increased 0.5% month over month, according to the Bureau of Labor Statistics, or the biggest gain since August 2023. Economists were looking for inflation to rise 0.4% last month. On an annual basis, headline CPI rose 3%, up from 2.9% in December, and higher than the 2.9% median forecast.

More importantly, core CPI, which excludes volatile food and energy costs and is considered a better indicator of future prices, increased 0.4%, an acceleration from 0.2% last month. Economists were looking for monthly core CPI to increase 0.3%.

On an annual basis, core CPI also came in hot, at 3.3% vs the median estimate of 3.1%.

"Higher-for-longer may have just gotten a little longer," writes Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. "The Fed has been waiting for clear signs that inflation is trending lower again, and this morning they got the opposite. Until that changes, the markets are going to have to remain patient about additional rate cuts."

Indeed, the disappointing inflation report caused market participants to push back their expectations for the next Fed rate cut to December from September, notes YCharts.

As of February 12, futures traders assigned a 97.5% probability to the Federal Open Market Committee (FOMC) keeping the short-term federal funds rate unchanged at 4.25% to 4.5% at the next Fed meeting. That was up from 95% a day ago and 76% one month ago, according to CME Group's FedWatch Tool.

With the January CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward.

Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"Today's stronger-than-expected CPI release is likely to further cement the FOMC's cautious approach to easing. A resilient labor market also provides scope for patience. We think the Fed is likely to remain in 'wait and see mode' for the time being and anticipate the Fed staying on hold at next month's meeting." – Whitney Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions within Goldman Sachs Asset Management

"With this very strong CPI print, the Federal Reserve is on hold when it comes to interest rates for at least the remainder of 2025. Inflation and inflation expectations are both rising, which is something the Fed needs to counter by keeping rates higher for longer. The Fed has nothing to do at this point but wait and see, and hope that the economic indicators change to suggest more progress on inflation. If consumer prices or inflation expectations rise any further, it is quite possible that the Fed's next move is to raise short term interest rates." – Skyler Weinand, chief investment officer at Regan Capital

"Inflation has gotten sticky with items like used cars and auto insurance ticking back up. This puts pressure not only on the Fed but also on the White House to tread carefully on tariffs. There was progress on owners' equivalent rent, but other items are moving the wrong way. Investors may not react too aggressively yet because we get more data before the key dot plot in March. But time could be running out for this bull market if we don’t see progress on inflation soon." – David Russell, global head of market strategy at TradeStation

"Inflation has boiled back to the top of headlines as market and sentiment-based inflation expectations have been on the rise. This morning's report gave those expectations merit. The path forward for Powell and the Fed is getting murkier as investors are likely to continue questioning the rapid initial pace of rate cuts in Q4 and the economy grapples with tariff implications going forward." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"There's a déjà vu element here – 2024 also started with a few hot inflation prints that forced a big reassessment of rate-cutting expectations. We have already been grappling with uncertainties surrounding trade and fiscal policy this year, and I continue to trust the Fed's patient and data-dependent approach to deciding when it might be appropriate to make another move." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"The January CPI report showed a 0.5% increase, exceeding expectations of 0.3%, and also 0.1% higher than expectations excluding food and energy. Importantly, this result continues the slow but steady increase in CPI since the 0% gains reported in May and June 2024. As such, we think this result will remove any near-term expectations of another Fed funds rate cut. However, we don't think this report alone alters the outlook for a soft landing for the U.S. economy. If GDP continues to grow over 2%, and the Atlanta Fed GDPnow forecast for 1Q 2025 is still for growth of 2.9%, along with modest increases in job growth (U.S. non-farm payrolls), we think the soft landing can be sustained without needing further Fed rate cuts."– Chip Rewey, chief investment officer at Rewey Asset Management

"This will leave a mark. After this morning's CPI report, which was hot on both headline and core, whatever level of confidence the Fed had of inflation getting back to their 2% target had to be reduced. From an equity market standpoint, whatever level of valuation support came from an outlook for lower rates, sooner rather than later, must be reconsidered. The sheer amount and materiality of the policy changes in motion, and the enormous implementation risks they pose, mean the Fed has no better idea than the rest of us what the ultimate outcome will be for growth and inflation. We remain more optimistic than pessimistic but making significant calls one way or the other in this environment feels speculative in nature." – Steve Wyett, chief investment strategist at BOK Financial

"Inflation is still hanging around like an unwelcome relative at Thanksgiving dinner; it may not be completely unbearable, but it's certainly more than a little irritating. What's worse, they may now be looking for a second helping. The unexpected acceleration in inflation marks the third consecutive monthly uptick in the consumer price index and extends a reflationary trend since two consecutive flat months for the index in May and June 2024. Economic growth has been firm, with consumers spending briskly into the end of last year. Labor conditions have shown signs of stabilizing, with job creation in recent months solidifying and the unemployment rate still quite low. Against a backdrop of solid demand, inflation has accelerated. It's a reality that may spook consumers who remember the COVID-era price spike all too well. For now, it's a 'wait and see' approach for Fed chair Jay Powell and his colleagues, who recognize that the case for further easing in the near term has been reduced. Rate hikes don't appear to be on the table, but a sustained resurgence in inflation could change that." – Jim Baird, chief investment officer at Plante Moran Financial Advisors

"Combined with the higher-than-expected average hourly earnings and lower-than-expected unemployment rate in Friday's jobs report, the Fed is likely on hold for at least its next two meetings in March and May. There is an increasing chance that the Fed's next move will need to be a rate hike later in 2025." – David Royal, chief financial and investment officer at Thrivent

"The January inflation number may be the last data point that can be pinned on the Biden administration. Going forward we will start to be able to judge the effects of new policies, or 'pauses' in them. While Jay Powell largely avoided the topic of tariffs in his testimony so far, he did say that it could take time to see the effect of them in the economic data. With that ambiguity, it seems like the table is being set for the higher-for-longer dinner party." – Dann Ryan, managing partner at Sincerus Advisory

"Higher-than-expected inflation in January has pushed rates higher and likely pushed any Fed cuts back to the middle of 2025. But let's not forget that earnings are still at record levels, profit margins are near cycle highs and productivity remains solid. In other words, this bull market is likely still alive and well, we are just seeing the typical post-election year volatility you tend to see early in this year." – Ryan Detrick, chief market strategist at Carson Group

"This is a tough inflation report to get while the White House is looking at further tariffs with consumer inflation expectations jumping higher. While this does not blunt our optimism yet on both the economy and stocks, it does bear watching closely." – Scott Helfstein, head of investment strategy at Global X

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Inflation is a retirement risk factor seniors can't easily shake. That's because some degree of inflation is normal over time. In fact, the Federal Reserve actually supports 2% inflation in the long run and feels that this particular level lends to ongoing economic stability.

Still, in recent years, sticky inflation has been taking a toll on older Americans (and younger ones, too). In a 2024 Allianz Life study, 63% of Americans said they worry more about running out of money than dying. And recent inflation has only heightened that fear.

A separate 2024 survey by Schroders found that among retired Americans, the top concern was inflation eroding the value of their assets, beating out their fear of rising healthcare costs and a stock market downturn.

Inflation-related concerns have intensified in recent years due to the higher-than-average prices U.S. consumers have experienced in the wake of the pandemic. Generous stimulus policies put extra spending money in Americans’ pockets and fueled a much-needed economic recovery. But that sudden uptick in spending drove living costs upward across the board.

Thankfully, inflation has been cooling gradually since the Consumer Price Index (CPI) peaked at 9.1% in June of 2022. But it’s remained stubbornly high, which is undoubtedly putting many seniors in a tough financial spot today.

Inflation seems stuck in a holding pattern

In late 2024, the Federal Reserve began lowering its benchmark interest rate in response to cooling inflation. Its last rate cut arrived in December 2024, during which time it noted that inflation had made progress toward its 2% target but remained somewhat elevated.

But the Fed opted to pause its rate cuts in January, citing sticky inflation. And in light of new inflation data, a rate cut is also looking unlikely at the Fed’s next meeting in March.

In January, the CPI rose 3% on an annual basis and 0.5% on a monthly basis. Unfortunately, increases in a few key categories are likely to hurt retirees in particular.

In January, food costs were up 2.5% annually, as were energy services. Shelter costs were up 4.4% year over year, and transportation services rose 8%.

Perhaps most notably for retirees, the cost of health care services rose 2.7% from the January prior. Medical care tends to be a major expense for older Americans due to a combination of factors, including Medicare limitations and the fact that medical problems tend to arise with age.

The University of Michigan’s most recent National Poll on Healthy Aging found that among adults 50 and over, the general cost of medical care was a top concern. In 2024, CDC data found that older Americans are skipping medication doses or delaying prescription refills due to an inability to afford the costs.

Healthcare cost increases typically outpace the broad economy. But given that this is such a notable expense for retirees, it stands to reason that the aforementioned 2.7% increase will hurt seniors in 2025.

That said, thanks to the Inflation Reduction Act, Medicare Part D enrollees will have a $2,000 cap on out-of-pocket prescription drug spending, so that may help seniors with larger-than-average expenses.

Social Security's COLA isn't keeping up

Social Security benefits are eligible for an automatic cost-of-living adjustment (COLA) each year. COLAs are tied to inflation and are supposed to help older Americans maintain their buying power as living costs rise.

At the start of the year, Social Security recipients got a 2.5% COLA, which was calculated based on third-quarter inflation data in 2024. Unfortunately, though, the most recent CPI reading shows that that 2.5% increase is already lagging behind inflation.

Of course, that’s not surprising. Because COLAs aren’t predictive, but are rather based on past data, seniors often end up with COLAs that trail inflation. But the broader issue is that retirees on Social Security have been losing buying power for years. Social Security benefits lost about 20% of their buying power between 2010 and 2024, according to the non-partisan Senior Citizens League.

Coping with inflation

Frustratingly high inflation may be with us for the remainder of 2025, particularly as President Donald Trump's tariff policies are just beginning to be implemented. And that could be particularly painful for seniors on a fixed income.

If inflation has been wreaking havoc on your budget this year, you may want to find a financial adviser specializing in retirement planning and reassess your portfolio. A shift toward more income-producing assets like dividend stocks could be appropriate, depending on your risk tolerance and broad investment mix.

Another option may be to pursue part-time work or side hustles for extra income. Social Security recipients may work while collecting benefits, but be very careful. You'll be subject to an earnings test if you haven’t yet reached your full retirement age.

If the idea of a more traditional part-time job isn’t appealing, you can look to the gig economy instead. Gig work, by nature, tends to be flexible, and you may even find that you can monetize a hobby.

Even if you end up having to take a more traditional part-time job, there can be benefits to doing so on top of the extra money. Work can be a means of socializing, and a part-time role can add structure to your calendar and avoid the high cost of loneliness. So, while your primary motivator may be to get a leg up on rising living costs, you may find that working fulfills additional needs you didn’t realize you had.

Read More

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A large swath of New Yorkers could benefit from a major tax cut aimed at middle-class workers.

Gov. Kathy Hochul’s 2026 State Budget agreement will deliver nearly $1 billion in tax relief to more than 8.3 million New Yorkers. The measure would provide immediate savings to taxpayers earning up to $323,000 for joint filers.

The tax package would lower middle-class taxes to the lowest level in nearly 70 years, Hochul says. Once in place, the middle-class tax cut is estimated to provide hundreds of dollars in average savings for 75% of state filers — that’s three out of every four taxpayers.

The tax cuts would take effect in the current tax year, according to the governor’s agreement.

Hochul’s approved budget plan includes other highly anticipated tax breaks, such as increasing the Empire State Child Credit and a first-of-its-kind inflation refund.

The tax plans come as state lawmakers argue New Yorkers may need to brace for more taxes and fees to supplement the Metropolitan Transportation Authority’s (MTA) budget shortfall. They also come at the heels of a new congestion pricing toll, which has lost the governor some favor among Manhattan’s commuters.

Here’s what you should know about the governor’s budget agreement for New York taxes in 2025.

New York Inflation Refund

It’s no secret that inflation has been a sour note for New Yorkers.

From higher prices at the grocery store for milk and eggs to higher prices on clothing or events. Many locals have had to adjust their spending to keep up with their daily expenses.

New York also levies a 4% state sales tax, with an average combined state and local sales tax rate of 8.53%. That’s among the highest state sales taxes in the country.

“Because of inflation, New York has generated unprecedented revenues through the sales tax — now we’re returning that cash back to middle-class families,” Hochul said in a statement accompanying the release of her budget plans. “It’s simple: the cost of living is still too damn high, and New Yorkers deserve a break.”

The FY 2026 State Budget agreement includes Hochul’s plan for the state’s first-ever inflation refund. The measure would deliver $2 billion in refunds back to more than 8 million New York taxpayers.

Who would benefit from the one-time New York Inflation Refund?

• Joint filers who earn $150,000 or less would receive a $400 refund check
• Joint filers who earn more than $150,000 but no greater than $300,000 would receive a $300 check
• Single taxpayers who earn $75,000 or less would receive a $200 check
• Single filers with incomes over $75,000 but no more than $150,000 will receive a $150 check

Details regarding the disbursement of inflation refund checks will be announced soon, according to the governor's office.

Expanding the Empire State Child Credit

Millions of children in New York benefit from the state child tax credit, known as the Empire State Child Credit.

Hochul’s state budget agreement includes doubling the child tax credit, by increasing the maximum annual credit to $1,000 per child under age 4 and up to $500 per child from the ages of 4 to 16. Hochul’s expansion would double the size of the average credit from $472 to $943.

The expansion also eliminates a longstanding provision that restricted New York’s poorest families from accessing the credit. As a result, more than 187,000 children will now be eligible for the credit, per the governor’s office.

As reported by Kiplinger, the Empire State Child Credit expansion would benefit up to 1.6 million New York taxpayers and 2.75 million children.

Free School Meals for New York Students

More than 2.7 million New York children won’t have to worry about their school meals anymore. The 2026 State Budget agreement includes Hochul’s vow that students can receive breakfast and lunch for free at school, regardless of their parents’ income.

Free school meals are estimated to save families $165 per child in grocery spending.

Can New Yorkers expect tax cuts in 2025?

Hochul’s tax breaks for working families will be a welcome relief to millions of New York taxpayers.

However, state lawmakers warned that raising taxes for New Yorkers wasn’t off the table this year.

Legislative leaders still have to figure out how to fill the MTA’s multi-billion-dollar budget gap. As reported by Kiplinger, the MTA’s five-year $65 billion capital plan was shot down in December due to a failure to indicate the source of half its revenue.

Notably, lawmakers said the newly implemented congestion pricing wouldn't be enough to fill the budget gap.

The concerns come after MTA officials signed off on a new construction plan in September, estimated to be worth $33 billion. The plan, scheduled from 2025 to 2029, aims to repair and expand the MTA’s infrastructure.

Stay tuned as we cover more developments on your state taxes and when you can expect to see some of Hochul’s tax breaks to hit your wallet.

More on New York Taxes

• Gov. Hochul Wants to Triple the New York Child Tax Credit
• NYC Congestion Pricing: 'Ghost Tax' or Necessary Fee?
• More Taxes Could Slam New Yorkers Over MTA Budget Shortfall
• New York School Tax Relief (STAR) Checks Coming Now: What to Know

A cooler-than-expected reading on underlying consumer price inflation eased fears about the Federal Reserve having to become more hawkish on interest rate cuts and solidified market expectations for a pause at the central bank's next meeting, experts say.

For the record, headline December CPI increased 0.4% month over month – a slight increase over the 0.3% rate seen in each of the previous four months – to match economists' expectations. On an annual basis, headline CPI rose 2.9%, according to the Bureau of Labor Statistics. Although inflation accelerated on a year-over-year basis, the print comported with market forecasts.

More importantly, core CPI, which excludes food and energy costs and is considered a better indicator of future prices, increased 0.2% after rising 0.3% for four straight months. Not only did that beat estimates for a 0.3% increase, it represented the first drop in the rate in six months.

On an annual basis, core CPI also came in soft at 3.2% vs the median estimate of 3.3%

"Today's CPI may help the Fed feel a little more dovish," writes Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. "It won't change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates."

Zentner adds that the market's initial response showed that "investors appeared to feel a sense of relief after a few months of stickier inflation readings."

As of January 15, futures traders assigned a 97% probability to the Federal Open Market Committee (FOMC) keeping the short-term federal funds rate unchanged at 4.25% to 4.5% at the next Fed meeting. That was up from 95% a day ago, according to CME Group's FedWatch Tool.

Market participants expect fewer rate cuts this year, mostly in increments of 25 basis points (bps), or 0.25%.

With the December CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward.

Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"The modest core reading confirmed inflation remains on a downward trend, putting a lid on longer-term yields. The Fed is now less of an issue and investors can start focusing on the expected acceleration in corporate earnings. The bull market might not be dead. Perhaps it was just resting." – David Russell, global head of market strategy at TradeStation

"Some of the market's angst on inflation lessened this morning as a lower than expected core CPI reading added to a lower than expected PPI reading yesterday. Capital markets are responding favorably this morning as a lower than expected core inflation reading eases some pressure on rates. Questions about how much lower rates can go remain, but there is less talk about a Fed not only not lowering rates from here but maybe even having to reverse course before the end of the year." – Steve Wyett, chief investment strategist at BOK Financial

"It is looking less and less likely that an accommodative Fed is the primary force that supports markets in 2025. We think the S&P 500 will make new all-time highs in the year ahead, and it's earnings results and forward guidance that are needed to justify the rally. The positive reports out from banks today bode well for our view that Q4 S&P 500 earnings growth is likely to beat current consensus expectations." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"The headline Consumer Price Index (CPI) came in as expected, with core inflation (excluding food and energy) a tenth below expectations on both a month-over-month and year-over-year basis. Coupled with yesterday's Producer Price Index report, which showed significantly lower than expected wholesale inflation, this week's inflation data should give the Fed some modest additional confidence that progress in bringing down inflation has not stalled entirely and that we're not seeing a resurgence in inflation. While today's report showed continuing progress in bringing down core inflation overall, the increases in prices of items closely watched by consumers could continue to be a drag on consumer confidence, which has already shown weakness on inflation concerns." – David Royal, chief financial and investment officer at Thrivent

"These numbers give the Fed cover to stay patient and wait for additional data to make their next move. Currently, the market is not pricing in a January Fed cut. However, the likelihood of a June cut is now at near 100%. Previous to today's number, the market was only expecting one 25 bps cut in 2025, but now the market is pricing in over 1.5 cuts. Perhaps most importantly, today's CPI number takes additional rate hikes off the table which some market participants were beginning to prematurely price in." – John Kerschner, head of U.S. securitized products and portfolio manager at Janus Henderson Investors

"December's relatively benign CPI report should douse speculation that the Fed's next move will be to tighten policy. Looking ahead, we continue to think that core PCE inflation will fall slightly over the next two months, bolstering the case for the FOMC to ease policy at its meeting in late March. The combination of a stronger dollar, flat energy prices and unwinding post-hurricane replacement demand for vehicles will ensure any further increase in CPI core goods inflation is modest." – Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics

"After recent red-hot data, today's softer than expected core CPI reading should help cool fears of a reacceleration in inflation. While today's release is likely insufficient to put a January rate cut back on the table, it strengthens the case that the Fed's cutting cycle has not yet run its course. With labor market data remaining robust, however, the Fed has scope to be patient and more good inflation data will be required for the Fed to deliver further easing." – Tina Adatia, head of fixed income client portfolio management at Goldman Sachs Asset Management

"The market can breathe a sigh of relief thanks to cooler than expected readings on core CPI and PPI this week. Anxiety seemed to be building amongst investors over the past few weeks from fears of inflation resurfacing and rising bond yields. Inflation remains stubborn, but the disinflationary trend is slowly moving in the right direction. There are numerous reasons why inflation is unlikely to rear its ugly head again, even though there were concerns of another wave. The labor market isn't inflationary as the labor market is roughly balanced and nominal wage growth is running consistent with the Fed's inflation target. Plus, solid trend productivity growth is disinflationary. The stickiest component of inflation remains shelter, but even that component is moving in the right direction as the year-over-year inflation growth was 4.6%, which is the smallest one-year gain since January 2022." – Eric Sterner, chief investment officer at Apollon Wealth Management

"Wednesday's softer-than-expected CPI print offers some relief, especially after last Friday's hot employment numbers, that the Fed may be able to still cut interest rates in 2025. Even if the Fed cuts rates in 2025, it's likely to be six to eight months away, as we are still too far from the Fed’s inflation target for the Fed to continue their rate cut march anytime soon. The Fed needs to see more employment and inflation prints before they can start to telegraph their interest rate plans. The market is pricing only one rate cut in 2025, with that cut likely taking place in the fall. The fact that this rate cut is priced out so far out in the future shows that investors are extremely skeptical of an accommodative Fed this year." – Skyler Weinand, chief investment officer at Regan Capital

"Modest inflation and a strong labor market. The CPI number is relatively good news. The Fed can be patient and the economy is healthy. This is not a time to run for the hills. This may be the last inflation reading before tariffs and a meaningful shift in foreign policy. At the same time, renewed spirits among small businesses and modest producer inflation are good signs. There are opportunities outside of the broad indexes that continue to look attractive." – Scott Helfstein, head of investment strategy at Global X

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An inline reading for the November Consumer Price Index keeps the Federal Reserve on track for a quarter-point rate cut at its next policy meeting, but the outlook for borrowing costs next year is becoming less clear, experts say.

Among the unknowns are the ways in which a series of proposed tariffs could contribute to inflationary pressures.

For the record, headline CPI increased 0.3% month over month, a slight increase from the 0.2% rise seen in the previous four months. On an annual basis, headline CPI rose 2.7%, according to the Bureau of Labor Statistics, up from 2.6% in October.

Although inflation accelerated on a year-over-year basis, the print essentially matched market forecasts.

Core CPI, which excludes food and energy costs and is considered a better indicator of future prices, also matched estimates. The gauge increased 0.3% in November, or the same rate seen over the previous three months. Annual core CPI advanced 3.3% to match consensus expectations.

"No news is good news," writes David Russell, global head of market strategy at TradeStation. "Inflation has stopped falling, but it isn't enough of a problem to derail this bull market. Inflation and the Fed are becoming less of a catalyst. Attention could now shift to the incoming administration’s tariff policy."

As of December 11, futures traders assigned a 95% probability to the Federal Open Market Committee (FOMC) cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, at the next Fed meeting. That's up from 78% a week ago, according to CME Group's FedWatch Tool. Odds of the Fed standing pat fell to 5% from 22% last week.

With the November CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward.

Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"No surprises from the CPI, so for now the Fed should be on course to cut rates again in December. Next year is a different story, though, given the uncertainty surrounding potential tariffs and other Trump administration policies. The markets are already weighing the possibility that the Fed will cut fewer times in 2025 than previously thought, and that they may hit the pause button as early as January." – Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management

"We're content with today's CPI release. While the headline reading did tick up 0.1% relative to last month, 2.7% is in line with expectation for today. Concerns about re-inflation have been top of mind as economic and equity growth has remained on a resiliently fast pace despite elevated short and long-term yields. Any reading that does not surprise to the upside is welcomed, as the last 1% of declines toward the 2% CPI target tends to be stubborn." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"With both headline and core inflation in line with expectations, the Federal Reserve will likely still cut by 0.25% at its meeting next week. However, underlying inflation concerns could cause the Fed to pause any rate cuts at its January meeting." – David Royal, chief financial and investment officer at Thrivent

"Today's CPI print reinforces the current dilemma for effective monetary policy. The Fed is easing at a time where, on one hand, the 2-year Treasury rate remains lower than the overnight rate, which historically suggests that the market views Fed policy as too restrictive. Yet while inflation has cooled, it remains above the Fed's stated target. Further easing would be beneficial at the margin for consumer confidence and economic strength to the degree that key financing rates follow the overnight rate lower. Conversely, persistent inflation would weaken consumer confidence that has recently rebounded but remains on tenuous ground. Due to these conflicting forces, we view today's report as having a neutral influence on equity risk in the near term." – Jordan Rizzuto, chief investment officer at GammaRoad Capital Partners

"We expect core PCE inflation to hover within a 2.5% to 3.0% range for most of 2025, preventing the FOMC from easing quickly enough to fully stabilize the deteriorating labor market. We continue to expect the FOMC to reduce the funds rate at alternate meetings next year, with the risks skewed towards an even slower pace of easing." – Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics

"These numbers were roughly in line with expectations, but they are still high relative to where the Fed wants them to be. The FOMC is expected to cut its target interest rate again at its next meeting this month, but FOMC members may want to reconsider that plan in light of today’s numbers." – Patrick Horan, macroeconomist at the Mercatus Center

"CPI as expected but the path to 2% remains uneven and might be slower than we expected a few months ago. Both headline and core were reported at up 0.3%, which puts the year-over-year number at 2.7% for headline and 3.3% for core inflation. This won't be enough to put the Fed off on cutting rates another 0.25% next week, yet the conversation at this point must be what changes to the rate path we can expect in 2025." – Steve Wyett, chief investment strategist at BOK Financial

"The November inflation report likely contained the last big data points that might color the Fed's imminent rate decision. In that regard, the report contained little that is likely to dissuade policymakers from trimming by another quarter point next week. The real questions relate to what comes next. The path for 2025 is less clear, but a course correction by the Fed toward holding rates a bit higher for a bit longer appears increasingly probable." – Jim Baird, chief investment officer at Plante Moran Financial Advisors

"We think the Fed will deliver a cut at next week's December meeting, with market expectations giving them 'permission' to do so. 2025's monetary policy decisions seem likely to be more contentious as fiscal and trade policy start a new chapter under the Trump administration. We think the Fed will move gradually, perhaps skipping January before cutting again in March." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"A Fed rate cut next week is likely a done deal, but today's inflation report could signal an early end to Fed policy easing. Shelter inflation was the lowest since early 2021, but goods inflation rose on the back of higher auto prices. With the incoming Trump administration likely to impose tariffs on imports and significantly tighten immigration policies, prices could re-accelerate further. If that's the case, December could represent the last cut in the easing cycle." – Ronald Temple, chief market strategist at Lazard

"The inflation number should be put in context. November last year was the second lowest in almost two-and-a-half years and an early indication that price stability was really improving. The slight uptick is probably not an indicator of a change in trend and is not reason to alter outlooks on equities or the Fed trajectory. Next year might prove to be a little more unsettling for prices with looming tariff increases impacting consumer prices and tax cuts fueling demand, but price stability has returned for now. Expect the Fed to cut 25 bps in December. Next year, three to four cuts are likely, but that could change." – Scott Helfstein, head of investment strategy at Global X

"Despite stubborn persistence in the headline and core CPI inflation data, today's report likely won't preclude the Federal Reserve from one more quarter point rate cut before the end of the year. Some FOMC members will likely take solace in the improvement in services and housing inflation. With that said, the Fed will need to see more improvement on the inflation front in the months ahead, if its plan for a steady pace of additional rate cuts next year is to be fulfilled. Large import tariffs at the beginning of next year could further aggravate the Fed's lingering inflation problem." – Scott Anderson, chief U.S. economist at BMO Capital Markets

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An inline reading on consumer price inflation keeps the Federal Reserve on track for a gradual pace of interest rate cuts, experts say, but details from the October Consumer Price Index (CPI) Report gave some market participants pause about the future course of monetary policy.

Among the unknowns experts cite are the ways in which a series of proposed tariffs could contribute to inflationary pressures.

For the record, headline October CPI increased 0.2% month over month – or the same rate seen in each of the previous three months – to match economists' expectations.

On an annual basis, headline CPI rose 2.6%, according to the Bureau of Labor Statistics. Although inflation accelerated on a year-over-year basis, the print comported with market forecasts.

Core CPI, which excludes food and energy costs and is considered a better indicator of future prices, also matched estimates. The gauge increased 0.3% in October, or the same rate seen in August and September. Annual core CPI advanced 3.3% to match consensus expectations.

"The reacceleration in inflation may cause some indigestion for the market as inflation comes back into focus with the possibility of higher tariffs in the next administration, but this is probably not sufficient to alter the Fed course on interest rates in the next meeting," said Scott Helfstein, head of investment strategy at Global X. "We still expect a quarter-point rate cut in December, but the pace of cuts may be slow in 2025."

As of November 13, futures traders assigned an 82% probability to the Federal Open Market Committee (FOMC) cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, at the next Fed meeting. That was up from 59% a day ago, according to CME Group's FedWatch Tool. Odds of the Fed standing pat fell to 18% from 41% the previous session.

With the October CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward.

Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"The October inflation data came in right on the nose of survey expectations. The markets clearly thought the inflation print would be hotter; futures pricing reflected a higher expected likelihood of a December rate cut. We agree with current market expectations around Fed pricing. Last week, Chair Powell reinforced that the Fed believes its policy stance is still restrictive, and that they remain on a rate-cutting trajectory. Our base case is that the Fed cuts 25 basis points in December before moving to an 'every other meeting' cadence for the first part of 2025." – Lauren Goodwin, chief market strategist at New York Life Investments

"There were no upside or downside surprises in the October CPI data, which is on balance encouraging because that means inflation continues to normalize. Lagging shelter inflation is still keeping core CPI elevated but there's disinflation in the pipeline, which should continue to put downward pressure on inflation in 2025. This should keep the Fed on track for another cut in December, especially since the guts of the report suggests PCE (their preferred metric) should be on the softer side. It's important to remember that the Fed actually targets headline inflation, rather than core, and so lower energy prices go a long way in keeping inflation muted." – Sonu Varghese, global macro strategist at Carson Group

"At a time when the market is trying to sort out what potential tariffs, future immigration policy, and debt and deficits mean for the multi-year outlook, a no-fuss inflation report like this one is welcome as one less thing to worry about right now. The Fed was clear that the incoming data – not speculation around potential fiscal and legislative pursuits – would continue to drive its decisions at the coming FOMC meetings. Barring a massive rebound in jobs market figures in the December 6 labor report, we think another cut is coming at the Fed's last meeting of the year." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"All told, the scale, timing and intensity of pass-through to consumer prices of all of Mr. Trump's agenda is extremely uncertain, rendering precise forecasting of inflation a futile exercise for now. But with the inflation risks overwhelmingly to the upside, the Fed cannot give the task of stabilizing the weakening labor market its sole attention. As a result, we revised up our forecast for the federal funds rate immediately after Trump's win and now look for a quarter-point easing in December followed by a pause in January, with quarter-point easings at alternate meetings during 2025." – Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics

"Discussions around 'reflation' have resurfaced and are expected to continue going forward, driven by anticipation of Trump's proposed economic policies. However, futures are currently pricing in a roughly 60% probability of another rate cut in December, following the cumulative 75 basis points of cuts at the last two FOMC meetings." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"CPI came in as expected at 2.6% annualized, but core inflation is stuck at a monthly rate of 0.3%, rising at an annualized rate of 3.6%. Continued moderation in energy prices is offsetting other sticky sectors of the economy, allowing the headline number to track with the Federal Reserve's target. Even though headline CPI is coming down, many critical components remain sticky. The bond market is now anticipating a slower pace of rate cuts while pricing in a greater risk of elevated inflation, illustrated by the recent rise in 10-year yields." – Mace McCain, chief investment officer at Frost Investment Advisors

"Bang in-line core inflation leaves the Fed on track to cut rates in December. After a run of unseasonably hot autumn data, today's number cools fears of an imminent slowdown in the pace of rate cuts. Still, with uncertainty over fiscal and trade policies high there is a risk that the Fed may opt to slow the pace of easing as the New Year chill sets in." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management

"Both headline and core consumer price indices rose in October, aligning with expectations, although the topline figure showed a slight year-over-year increase. Overall prices increased by 0.2% for the fourth consecutive month, translating to an annualized increase of about 2.4%. While shelter and used car prices accelerated compared to the prior month, the pace of increase for transportation and medical services slowed down. The monthly rise for core prices (excluding food and energy) was driven by services, as commodity prices remained flat in October." – Dawit Kebede, senior economist at America's Credit Unions

"No surprises from the CPI, so for now the Fed should be on course to cut rates again in December. Next year is a different story, though, given the uncertainty surrounding potential tariffs and other Trump administration policies. The markets are already weighing the possibility that the Fed will cut fewer times in 2025 than previously thought, and that they may hit the pause button as early as January." – Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management

"Although headline and core CPI remain above the Fed’s 2% target – some may say stubbornly above – today's reading was in line with projections. Powell's most recent statement reiterated the Fed view that unemployment and inflation remain in balance, but going forward, it will be interesting to see how the policies of a new administration will change the Fed's calculus. Their data-driven approach may dictate they wait until the impact shows up in economic reports, but there is still the possibility they try to get out ahead of potential price increases." – Melissa Brown, managing director of investment decision research at SimCorp

"Today's consumer price index release was in line with expectations and similar to last month. While the data show inflation that has moderated, the reality for most Americans is that prices remain higher than previous years. Cheer will likely still be dampened for the more than half of Americans (55%) worried about their holiday finances because of rising prices. Many consumers are planning to adjust their holiday spending given the current economy – 33% are planning to purchase less expensive gifts and 31% are planning to buy fewer gifts overall – and this month's CPI likely does not change this trend." – David Royal, chief financial and investment officer at Thrivent

"Markets have much to be thankful for this November, as a 2.6% year-over-year headline inflation print suggests inflation is falling in line with the Fed's goals for long-term price growth with minimal consequences to economic activity. Core inflation remains elevated at 3.3% year-over-year but is expected to correct course as the effects of October's supply shocks subside. Housing prices continue to drive the majority of inflationary persistence, which affirms that the Fed can afford to lower interest rates and bolster stability within the labor market while further restraining excess price growth. As inflation and interest rates continue to subside, staffing companies can expect these tailwinds to lower borrowing costs and increase the rate of churn within the labor market at large." – Noah Yosif, chief economist at the American Staffing Association

"It's time to stop worrying about the Fed and inflation. Stocks have been on autopilot since the election and today's numbers do nothing to hurt the trend. December is still in play for a cut. Overall, inflation is less of an issue as attention turns to the incoming administration." – David Russell, global head of market strategy at TradeStation

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A slightly hotter-than-expected September CPI report keeps the Federal Reserve on track to cut interest rates at a gradual pace as the broader disinflation trend seen in the U.S. economy remains on track, experts say.

Although headline inflation fell for a sixth consecutive month in September to hit its lowest level since early 2021, the reading topped economists' expectations due to stickiness in some of the Consumer Price Index's subcomponents.

For the record, annual CPI slowed to 2.4% in September from 2.5% the prior month, according to the Bureau of Labor Statistics. That exceeded economists' forecast for a 2.3% rise in inflation. More importantly, core CPI, which excludes volatile food and energy costs and is considered to be a better indicator of future prices, rose 0.3%. That topped expectations for a 0.2% increase.

The drop in annual inflation was helped by falling energy prices, while core inflation edged up due mostly to sticky costs for shelter, notes Jim Baird, chief investment officer with Plante Moran Financial Advisors.

"At 2.4%, headline inflation isn't terribly worrisome," Baird writes, "particularly since it's been running at an even cooler rate well below 2% annualized over the last six months – a pace that would alone suggest that the Fed's war on inflation has likely been won. If anything, the report was good enough to solidify the case for another quarter-point interest rate cut."

Although inflation hasn't receded rapidly enough to justify an accelerated pace of policy easing, today's upside surprise "doesn't raise serious questions about the underlying disinflationary trend," adds Baird.

A blowout September jobs report already had market participants frantically recalibrating their bets on how fast the Federal Reserve will normalize borrowing costs. The latest CPI report, while coming in hot, only appeared to affirm expectations for a cut of 25 basis points (bps), or 0.25%, at the next Fed meeting.

As of October 10, futures traders assigned an 89% probability to the Federal Open Market Committee (FOMC) reducing the short-term federal funds rate by 25 basis points in November, up from 68% a week ago. Odds of a 50 basis point cut dropped to 0% from 32% last week, according to CME Group's FedWatch Tool, while chances of the Fed standing pat rose to 11% from 0% a week ago.

With the September CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"CPI Inflation data was slightly on the hotter side, with commodity prices (outside) energy rising more than expected. The good news is that shelter inflation is pulling back and that’s going to pull inflation lower. The big picture is inflation continues to pull lower, albeit with some bumps along the way." – Sonu Varghese, global macro strategist at Carson Group

"The September CPI report came in a little hotter than expected, but nothing that we think will disrupt the Fed's plans to cut 25 basis points in February. The relative strength of recent economic data suggests that the Fed may move less, or more slowly, in normalizing interest rate policy. However, it still believes it is restrictive and wants to preserve the delicate balance between an economy that is working well and one that would unnecessarily weaken the labor market." – Lauren Goodwin, economist and chief market strategist at New York Life Investments

"The September CPI report came in stronger than expected, with core CPI in particular surprising to the upside. Labor market data, however, remains in the driving seat for the Fed and we see next month's payrolls release as the more important data point in determining the pace and extent of Fed easing." – Whitney Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions within Goldman Sachs Asset Management

"We retain our call for a 25 bp cut in the November FOMC meeting. Although core CPI surprised to the upside for the second month running, it appeared to be driven by some volatile components, while the sticky shelter category registered material disinflation. We think the FOMC will remain confident that the disinflation narrative is intact and that it will continue to view a gradual easing in the funds rate as warranted at the next two meetings. We view the bar for the FOMC not to cut rates at the November meeting as high, given its 50 bp cut at the September meeting." – Pooja Sriram, U.S. economist at Barclays

"The headline and core CPI figures were ever-so-slightly higher than consensus expectations. The difference – along with the stronger than expected recent jobs report – was probably not enough to cause the Fed to backpedal on their view that inflation and employment are now 'in balance.' However, those two data points seem to have increased the likelihood that the next cut will be no more than 25 basis points, and there could possibly be no rate cut." – Melissa Brown, managing director of investment decision research at SimCorp

"Any lingering expectations that the Fed would deliver another 50 bps cut at their next meeting should be wiped away after the September payrolls and now CPI data. Disinflation hasn't been derailed but still has some progress to make, and the growth backdrop isn't screaming for faster easing. A steady, 25-bps-per-meeting pace still feels prudent from here. Consumers might fixate on the firmness of inflation in categories like food, while the Fed might welcome the softer shelter reading finally starting to come through. Either way, inflation has been normalizing. As such, the evolution of the Fed’s approach feels prudent. This is unlikely to change their mindset on recalibrating their policy stance." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"While labor market risks were milder than expected, the Fed's final approach to a soft landing experienced some challenges in September, with growth in core prices rising by 3.3% year-over-year. However, these snares are only expected to be short-term disruptions in the long-term disinflation trend, which means the Fed can still afford to lower interest rates and bolster labor market churn while also maintaining pressure on prices. With the balance of risks still tilted toward the labor market, the Fed will likely stick to its current timetable of reducing interest rates by 25 bps in both November and December." – Noah Yosif, chief economist at the American Staffing Association

"This morning's CPI report exceeded expectations, complicating the Fed's near-term plans for more rate cuts. Persistent inflation is most evident in shelter and transportation, some of the toughest areas to tackle, while declines are primarily seen in energy and gasoline. If inflation keeps surprising to the upside, the Fed may delay further cuts of its benchmark rate longer than previously indicated." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"The hotter-than-expected inflation reported today is unwelcome news to the Federal Reserve, which cut rates a full 0.5% last meeting, and comes on the heels of a very strong September jobs report. Fed minutes released yesterday show there was considerable debate over whether to cut a quarter point or half a point. I suspect the Fed might be wishing they had only cut by a quarter point given recent data." – David Royal, chief financial and investment officer at Thrivent

"Fundamentally, however, the inflation outlook remains benign. The decline in the quits rate, below 2019 levels, and the decline in the number of openings per unemployed person over the last six months points to a further slowdown in wage growth ahead, which will continue to drag down CPI services inflation. Accordingly, core CPI inflation looks set to return to 2.0% by the fall of 2025, with core PCE inflation getting there a few months earlier, enabling the Fed to solely focus on arresting the weakening trend in the labor market." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"This number might not be as bad as it looks because shelter slowed sharply. That's important because housing costs have been the biggest lingering issue for inflation. It's not great news overall, but it's also unlikely to have much impact because the Fed is still early in its easing cycle. The days of CPI triggering major volatility could be fading." – David Russell, global head of market strategy at TradeStation

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On the surface, the relationship between interest rates and inflation is obvious: When prices get too high, the Federal Reserve counteracts by raising target interest rates. That makes borrowing money more expensive, which causes individuals and businesses to contract spending. That, in turn, lowers demand and, in theory, prices.

As a very simplistic, ground-level explanation, that fits. However, much as the calm surface of a lake hides an infinitely complex ecosystem below, there’s considerably more to the story. Failure to consider the complexities behind the surface explanation is why we’ve seen several predictions in late 2023 and throughout 2024 that have not come true, such as the idea suggested by well-respected financial organizations that the Fed would begin lowering interest rates early this year.

Different inflation metrics

A key factor in many of these overly optimistic predictions is that they’re based on the wrong metric. Almost any news story about interest rates will mention the Fed’s target of 2% inflation year-over-year. However, the important distinction often not mentioned is that the inflation statistic the Fed is considering is not the inflation statistic reported in most news stories. Those stories highlight overall inflation, the Consumer Price Index (CPI). The Fed usually determines interest rate strategy by also examining metrics such as the core Personal Consumption Expenditures Price Index (core PCE).

Among other differences, core PCE considers prices throughout the economy regardless of who made purchases at those prices. Core PCE includes the price of medical goods and services, such as doctor visits, covered by personal insurance or Medicare. CPI considers medical purchases made only by individuals, such as buying over-the-counter pain relievers at a drugstore.

The core PCE also doesn’t include energy or food prices because those prices tend to be more volatile than other categories, which makes snapshot views a less reliable indicator of overall inflationary trends. For example, when Russia invaded Ukraine in 2022, gas prices skyrocketed. That situation considerably impacted the CPI, but wasn’t by itself an indication that corrective action was appropriate: More important, it wasn’t an indication that corrective action would work.

That gas price spike was not caused by an increased demand for fuel. Instead, it was due to speculation that Russia’s war would impact the fuel supply. Because raising interest rates is a tool for reducing demand, it would be inappropriate as a tool for reacting to price fluctuations that aren’t tied to demand.

That’s an example of why core PCE is seen as a better indicator for deploying interest rate increases or decreases. It’s also an example of why so many predictions as to what the Fed will do with interest rates are off base.

Ultra-low interest rates are unlikely

Timing aside, many are hopeful that at some point, the Fed will lower interest rates once again to near 0%. However, the likelihood of that happening absent a fairly severe economic stumble is low, in large part due to one simple reason: If lowering interest rates is the only tool the Fed has to avert or reverse an economic downturn, it’s unwise to set target rates anywhere near the lowest they can go when we are not experiencing a downturn. In other words, setting the target rate to 0% now would leave the Fed no maneuvering room to address a slowdown in the future.

The Fed is walking a tightrope: On the one hand, it needs “dry powder” to stimulate the economy if needed. On the other hand, it’s undesirable for the dry powder that is higher interest rates to turn the economy toward recession. In that balancing act, the Fed is attempting to do something that has been seen as nearly impossible: beat back inflation without sending the economy into a recession — the “soft landing” scenario. So far, this seems to have been successful.

The last time inflation soared, in the 1970s and early ’80s, the Fed raised interest rates to curtail it. However, once inflation began to drop, the Fed decreased rates too soon, resulting in what’s been dubbed a “double-dip” inflationary period. By freeing up capital, the Fed inadvertently allowed smoldering inflation to ignite again.

That is a situation current Fed Chairman Jerome Powell is determined to avoid, which is why the Fed has been comparatively slower to lower interest rates. This reluctance to potentially cause another double-dip scenario is complicated by another factor: As a tool for influencing inflation, target interest rates are no longer the sledgehammer they once were.

When interest rates climbed in the 1970s, the result was a considerable reduction in the amount of funds available for individuals and businesses to borrow. In many cases, banks, which themselves frequently borrow money in order to lend it out, weren’t able to borrow enough money to lend; the flow of money was reduced to a trickle with the end result being inflation that was once again under control.

Reduced rate effectiveness

The modern economy is different. Following the financial crisis that began in 2007, U.S. monetary policy shifted to a quantitative easing plan in order to stimulate the economy. By flooding the banking system with money, quantitative easing maintains liquidity even in situations where liquidity would otherwise be constrained.

This means raising target interest rates doesn’t necessarily have the same impact on how expensive it is to borrow money: If the bank doesn’t have to borrow money from the Fed in order to lend it to you, but instead can borrow from other cash-flush banks at lower interest rates, it doesn’t have to pass that extra interest on to you in addition to the interest it charges.

Quantitative easing did what it was supposed to do in the 2007 downturn: It kept us from entering a depression rather than the deep recession we experienced instead. However, it wasn’t deployed as a one-time-use program; rather, it’s part of policy now. This can cause concern if not properly managed.

Increased market impacts

At the same time that interest rates have a lesser impact on inflation than they once did, they also have a more significant impact on the stock market. A low-interest-rate environment is good for the stock market because it forces investors who want a meaningful return on their money to enter the market. If the target interest rate is near 0%, the rate consumers can get on savings accounts, CDs and other interest-based investments will also generally be near 0%. Since such low returns won’t keep up with inflation, in a real sense you are losing money by keeping it in a low-yield account. You’re therefore more likely to decide to invest it somewhere with higher potential return, such as the stock market.

This, of course, means the market will react whenever the Fed makes a target interest rate decision. If the Fed is predicted to cut rates, the market will frequently become optimistic and rise in anticipation of greater investment. If the Fed then fails to cut rates, the market often reacts negatively.

Refining predictions

A better practice than making predictions based on CPI trends or, as is often the case, outright assumptions, is to consider the Fed’s Summary of Economic Projections, colloquially known as the Dot Plot. This document, updated regularly, outlines the future target interest rate each Fed banker believes is best policy. Especially under Powell, the Fed’s decision-making has tracked the Dot Plot fairly closely, meaning studying it can give you an idea of potential future interest rate decisions.

All this is to say there’s quite a bit more going on beneath the surface than the common public narrative of a direct link between CPI and interest rates. To make sound financial decisions, it’s important to have a deeper understanding of the mechanisms impacting your finances and the economy as a whole. Of course, if finance is not your vocation, it can be difficult to keep up with all the moving parts — it’s therefore always a good idea to work with a financial adviser who can consider these factors and more before recommending a course of action. (For some tips on how to cope with inflation, see the article How to Deal With Inflation: Advice From a Financial Adviser.)

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

A mixed August CPI report keeps the Federal Reserve on track to cut interest rates at the next Fed meeting, with a quarter-point cut looking much more likely than a half-point reduction in borrowing costs.

August CPI increased 0.2% on a monthly basis, according to the Bureau of Labor Statistics, which matched economists' estimates. However, core CPI, which excludes volatile food and energy costs and is considered to be a better indicator of future prices, rose 0.3%. That topped expectations for a 0.2% increase and made markets somewhat uneasy.

Market participants expect the Federal Open Market Committee (FOMC) to bring interest rates down from a 23-year high at the next Fed meeting. The question is whether the central bank will reduce the short-term federal funds rate by 25 basis points (a quarter of a percentage point) or 50 basis points (0.50%).

"The Fed will most likely cut by 0.25% at its meeting next week," writes David Royal, chief financial and investment officer at Thrivent. "A 0.50% cut, in my view, would've required inflation data today that were much softer than expected. The slightly hotter month-over-month core inflation probably takes a 0.50% cut off the table."

As of September 11, futures traders assigned an 87% probability to the Fed cutting by 25 basis points at the next Fed meeting, up from 66% a day ago. Odds of a 50 basis point cut dropped to 13% from 34% the previous day, according to CME Group's FedWatch Tool.

With the August CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"The CPI inflation report was good, but not great. Consumer inflation remains a bit of a mixed bag with relatively firm services and housing inflation, but continued signs of weakness and price declines in consumer goods and energy prices. Overall, this report shows continued progress toward the Fed's inflation goals with encouraging hints that inflation could moderate further on energy price declines and with services and housing inflation having room to ease. Nothing in this report would keep the Fed from cutting in September, but market hopes for a bigger half-point cut seem to be fading away." – Scott Anderson, chief U.S. economist at BMO Capital Markets 

"The economy is in the driver's seat, not the Fed. That is a good thing. Stabilizing prices, solid market, and strong corporate performance set the stage for a further market advance as the Fed moves to lower rates. A 25 basis point cut in September is the most likely outcome." – Scott Helfstein, head of investment strategy at Global X 

"Headline CPI was up just 2.5% year-on-year, which is the slowest in almost three-and-a-half years, and welcome news in the fight against inflation, especially for households. Core inflation was on the hotter side, but it was mostly because of the well-known lagging effects of official shelter inflation. This does set up the Federal Reserve (Fed) to start shifting policy and lower rates at their meeting next week. The big question will be whether the Fed cuts by 25 bps or 50 bps, and it'll likely come down to Chair Powell as to whether they go big to get ahead of clearly slowing labor market trends." – Sonu Varghese, global macro strategist at Carson Group

"CPI coming in below expectation this morning reiterated the Fed's stance that the economy is due for rate cuts. The Fed's focus turning toward employment rather than inflation at this point seems warranted, as recent labor reports have come in weaker than anticipated and have been coupled with downward revisions to prior reports. We are still fully anticipating a 25 basis point cut a week from now, and markets will have to grapple with the benefits of lower rates versus the signaling that the economy is weakening." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions 

"Today's CPI report is good enough for now. Inflation is moving in the right direction for the Fed to cut 25 basis points this month, but shelter costs remain a concern. On the other hand, we'll probably get some relief next month from the recent decline in energy prices. The numbers aren't runaway dovish, but they confirm the cooling process remains in effect. Attention could now shift from the Fed as a catalyst toward earnings and the election cycle." – David Russell, global head of market strategy at TradeStation

"The fundamental story of sustained disinflation remains unaltered by this CPI report. The August pick up in the core index was driven by components that have a much smaller weight in the core PCE deflator – the Fed's preferred inflation gauge – or which are sourced from the PPI." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"The celebrated June dip in shelter inflation looks to be challenged where the continued move lower that many (including the Fed) had called for could be in question. We all know shelter inflation needs to drop to bring inflation back to target so this is big. This is a frustrating report for the FOMC, as hopeful components that have shown a disinflationary impulse are slowing. The risk now is that inflation overshoots to the downside as the Fed is forced to delay cuts until the data (which is lagging) rolls over and it's likely too late. In our opinion, this report pretty much guarantees only a 25 basis point cut next week." – John Luke Tyner, portfolio manager and head of fixed income at Aptus Capital Advisors

"The general consensus on the street is that the Fed is behind in beginning its easing cycle. The Fed has been looking for more consistent economic numbers to justify a cut, and since its last meeting ending on July 31, the economic data and jobs data, including manufacturing, has indicated consistent weakness. However today's data release of August consumer prices indicated 0.2% increase (higher than expected) indicating inflation is still a tough beast to tame. Every day that we have rates at these levels, increases the odds of recession. Further what many have glossed over is the actual time it takes for a rate cut to have an impact on the overall economy – economists say 8-10 months. Is the Fed behind? Markets do not like this uncertainty, especially in an election year." – Kathleen Grace, CEO of Fiduciary Family Office

"While recent economic data may indicate a larger cut is already warranted, the Federal Reserve is likely to make only one 0.25% rate cut next week. The Fed likely has concerns, and rightly so, that a larger cut would be seen as an admission that the Fed is playing from behind and that the economy is slowing faster than it expected. Although hiring trends are likely to continue to slow, recent weekly employment data show a jobs market holding up and supportive of a soft-landing scenario. The Fed wants to get a couple more data points before it makes a more drastic move." – Ross Bramwell, principal at Homrich Berg

"Powell made it clear that the progress made on inflation up to this point is sufficient to justify the start of rate cuts – this report doesn't change that. Last week's labor market data might have left the odds of a 25 basis point cut vs. a 50 basis point cut as a toss-up, but today's inflation data tips the scales in favor of 25 basis points." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

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Inflation presents a challenge for most American households, but it can be particularly pernicious for retirees who live on a fixed income. For that reason, retirees who have signed up for Social Security benefits closely monitor the annual cost-of- living adjustment in their payments. Forty percent of seniors rely on Social Security for more than half of their monthly income, and 14% rely on it for more than 90% of their income, according to an analysis by AARP. 

Those seniors may be disappointed by the increase in their benefits in 2025. If the inflation rate remains on track, the annual adjustment will be less than 3%, the smallest increase since 2021. The Kiplinger Letter forecasts that the 2025 COLA will be 2.6%, down from 3.2% in 2024. 

The 2025 COLA will be based on the Consumer Price Index for Urban Wage Earners and Clerical Workers in the third quarter of 2024. So if inflation rises before October, the COLA will be adjusted upward — or if inflation declines, the COLA will be reduced. However, The Kiplinger Letter forecasts that the inflation rate for the rest of the year is unlikely to fall below recent levels. 

What the 2025 COLA will mean for retirees

The estimated 2025 COLA would still be larger than the average COLA before the pandemic’s effects ignited the inflation rate. Still, the COLA would fall short of the rate of inflation for retirees’ actual costs, advocates for seniors say. 

Seniors who own their homes have been insulated from steep increases in monthly rents, but older homeowners still have to pay property taxes and homeowners insurance, both of which have also risen sharply in recent years. Housing costs also include electric bills, which spiked over the summer because of record-setting heat, says Mary Johnson, a Social Security and Medicare analyst, who forecasts a Social Security COLA of 2.7%. 

Health care costs have also risen faster than the rate of inflation and account for a disproportionate percentage of retirees’ overall costs, Johnson says. Retired Americans spend an average of 14% of their monthly income on prescription drugs and other out-of-pocket medical expenses, according to a survey of retirees by Schroders, a wealth management firm. 

Inflation in health care costs increases Medicare Part B premiums, which cover doctor’s visits and other types of outpatient medical care. Most retirees have their Part B premiums automatically deducted from their Social Security payments, so an increase in premiums can diminish the boost from the COLA. In its annual report released in March, Medicare’s board of trustees predicted that standard Medicare Part B premiums will increase about 5.8% in 2025, to $185 a month, up from $174.80 a month in 2024. The Centers for Medicare & Medicaid Services (CMS) will announce Medicare Part B premiums for 2025 this fall. 

Increases in Part B premiums reverberate a bit more for a subset of seniors who are subject to the Medicare high-income surcharge, also known as the income-related monthly adjustment amount (IRMAA). The surcharge is based on beneficiaries’ modified adjusted gross income from two years earlier, so the 2025 surcharge will be based on seniors’ MAGI in 2023 (MAGI is a taxpayer’s adjusted gross income with a handful of deductions added back, including student loan interest, tax-exempt Social Security payments and excluded interest on savings bonds). 

CMS hasn’t announced the amount of the 2025 surcharge yet, but seniors who are subject to it are expected to pay Part B premiums ranging from $259 to $628.90, according to an analysis by Kiplinger.com. 

Prices for prescription drugs also increase at a faster rate than inflation, Johnson says, although seniors with high drug costs will get some relief in 2025: Out-of-pocket costs for prescription drugs will be capped at $2,000 a year. The cap was included in the 2022 Inflation Reduction Act. The law also gives Medicare the ability to negotiate prices for some high-cost drugs, but that won’t have an appreciable effect on drug prices next year, Johnson says. 

Plan ahead with an HSA

One of the most effective ways to prepare for health care costs in retirement is to contribute to a health savings account. Contributions to an HSA are pretax if you have an account through your employer (or tax-deductible if your plan is not from an employer), the money grows tax-deferred through the years, and you can withdraw it tax-free for eligible medical expenses at any time in the future. 

Once you enroll in Medicare, you can no longer contribute to an HSA, but you can use money in your account to pay premiums for Medicare Part B, Part D prescription-drug coverage, or a Medicare Advantage plan. 

If you have a health insurance policy with a deductible of at least $1,600 for single coverage or $3,200 for family coverage, there’s still time to contribute to an HSA for 2024. Maximum contributions for 2024 are $4,150 for self-only coverage and $8,300 for family coverage; those maximums increase by $1,000 if you’re 55 or older. In 2025, you can contribute up to $4,300 for self-only coverage if you have a plan with a deductible of at least $1,650; $8,550 for family coverage if you have a deductible of at least $3,300.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Americans’ wallets have taken a hard hit over the last few years, and now lingering inflation and high interest rates are pushing some families to the brink.

Shoplifting increased 24% in the first six months of 2024, according to the Council on Criminal Justice’s midyear report. Following this report, LendingTree conducted its own survey on retail theft. Its findings revealed more than 20% of respondents admitted to shoplifting within the past year. Nearly 90% of those who confessed to shoplifting said inflation and the current state of the economy pushed them to steal. It should go without saying that committing a crime isn’t the way to solve the issue. But that doesn’t negate the fact that inflation has become a real problem for families across the country.

Data has shown that inflation disproportionally affects low-income families, or those on fixed incomes. A Bankrate report found that more than 3 in 5 U.S. adults without an emergency savings fund have less than $500 in the bank. The report says part of this could be because people with lower incomes typically spend more of their budget on goods that are susceptible to price hikes during periods of inflation.

Think about the rise in gas prices or goods at the grocery store you’ve seen in the past four years. In an analysis of data from the Bureau of Labor Statistics, Bankrate found prices are 20.8% higher now than they were in February 2020. These everyday costs are taking a sizable amount from low-income and fixed-income budgets. Although there are federal assistance programs and Social Security, income limits can often put families between a rock and a hard place. So what are some practical ways to cut costs?

1. Share resources.

American culture is very individualistic. People often don’t talk about their finances, which makes it hard to seek help when you’re struggling. However, this is a time when we can share resources — a win-win solution for all of us. Consider starting a community garden or trading goods. Maybe you’ve grown a lot of veggies and fruits this summer, while a friend raises chickens. You could give some of your produce away in exchange for a dozen eggs. Carpooling to work or school can also lower your fuel expenses.

2. Find ways to cut your living expenses.

If your situation allows, moving back home or getting a roommate could be a huge help. It’s so much easier to split the bills than to handle them all on your own, especially if you have a low or fixed income.

If you’re raising a family, this may not be practical, so you’ll need to find other areas of your life where you can cut spending. Growing your own food, canceling cable or streaming services and even negotiating your bills are some ways to do this.

3. Reduce unnecessary spending.

Online shopping and social media have made it extremely easy to buy things on impulse. Don’t let this turn into a habit. Putting items in your shopping cart and letting them sit a few days can help. You may realize you don’t need the item or may have forgotten about it altogether.

Minimizing screen time or adjusting your ad preferences on your social media platforms can also help. The less time you spend online, the less you’ll be exposed to tempting ads.

Reducing unnecessary spending might also mean skipping going out of town for vacation or delaying home renovations.

4. Shop smarter.

Shopping at grocery stores like Aldi can help you lower your grocery bill. Utilizing coupons and rewards programs can also lower the bill.

Retailers like Sam’s Club, Kroger and Costco offer cheaper gas for members.

Also, don’t be afraid to look into credit cards that offer cash back or rewards for making purchases — just be sure to pay off the bill each month to avoid high interest.

When it comes to shopping for clothes or household items, consider shopping at secondhand stores or even garage sales. You may be surprised how far your dollars go.

If you want to take it a step further, consider reselling items you’re no longer using to a thrift store or at a garage sale. It could be a nice way to generate a little extra cash.

5. Don’t give up.

We don’t know just how long we’ll be living with higher prices. If you can, find ways to generate additional income. This can be difficult depending on your situation, but it can help provide a cushion. If you can’t, continue to stay the course. Make a budget and stick to it and consider leaning on your friends and family for help.

The good news about inflation is that it is coming down, as reported in the article Kiplinger Inflation Outlook: Another Good Inflation Report. A financial planner can help you come up with a plan to cut costs, create savings or find ways for you to generate income. If you’re struggling financially, don’t be afraid to ask for help.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Inflation.

It killed the presidencies of Jimmy Carter and Gerald Ford, relegating both to the status of a one-term president. Broad dissatisfaction with post-pandemic inflation weighed heavily on President Joe Biden's popularity. It may have been one of the factors in his decision not to seek a second term.

In the immediate aftermath of former President Donald Trump's victory over Vice President Kamala Harris, it appears that inflation and its impact on households over the last few years was the hot-button issue in this year's campaign for the White House.

Although inflation has cooled, prices are still higher than we've been used to, and that's caused a lot of consternation.

"Groceries are 25% higher and people are blaming you and Joe Biden for that. Are they wrong?" Bill Whitaker of CBS News asked Harris on a "60 Minutes" segment that aired October 7. Similarly, during the September debate, Trump blamed Biden for "the worst inflation we've ever had," where "people can't go out and buy cereal, bacon or eggs or anything else."

Trump has said his economic plans include increasing domestic oil and gas production to lower energy costs and increasing tariffs, although, tariffs can increase prices of products and energy prices "don't respond quickly to executive orders," per the Wall Street Journal.

Alongside calls to end taxes on Social Security benefits and taxes on overtime pay, as well as limits on other taxes, Trump's policy ideas could increase national debt by $7.5 trillion through 2035, a Committee for a Responsible Federal Budget analysis found.

But is inflation really a president's fault?

And what, if anything, can a commander in chief do to fix it?

The relationship between inflation and the person in the White House is complex because inflation itself is complex. And, while the president cannot control inflation, per se, they can certainly influence it.

So, let's break it down, starting with what drives inflation.

Inflation is the rate at which prices rise over time. Or, put differently, it measures how much your money is worth relative to the goods and services you can buy with it.

The reasons for inflation are varied, but ultimately, they all come down to basic supply and demand. That's how all markets work. When demand is higher than supply, prices rise to compensate. Likewise, when supply outpaces demand, prices fall.

Both aggregate supply and aggregate demand can be influenced by government policy, though not necessarily by the president.

Who controls inflation in the US?

Let's take a look at some of the ways the government can influence the economy, starting with the Federal Reserve's role.

The Fed regulates the supply of dollars and the speed with which they change hands in two primary ways. The first is by setting short-term interest rates and the second is by buying and selling bonds on the open market (i.e., quantitative easing).

When the Fed buys bonds, it essentially creates new dollars. And when it sells bonds, it takes dollars out of circulation. Low interest rates encourage borrowing and spending, which is inflationary. For most of the past two decades, the Fed has run excessively loose monetary policy, keeping interest rates pegged extremely low for years at a time and essentially flooding the economy with trillions of new dollars via its bond buying.

While the Fed has been hawkish for the past two years, that doesn't undo two decades of dovishness. The Fed's loose policy is a major contributing factor to the inflation we continue to experience today.

This is not directly under the control of the president, as the Fed is designed to operate independently. The true extent of the Fed's independence is debatable, of course, and it is assumed that the president has at least a degree of informal influence.

However, the president does play a major role in selecting the people who run the Federal Reserve. The seven members of the Fed's Board of Governors are nominated by the president and confirmed by the Senate for terms of 14 years. The chair, a position currently held by Jerome Powell, is nominated by the president and serves a term of four years.

Powell, for what it's worth, was initially appointed to the Fed governing board by President Barack Obama, before being nominated by Trump for the chair position. In 2021, Biden reappointed Powell to the role. While there have been rumblings about what Trump might do, he has said he would let Powell serve out his term, which ends May 2026.

But, at least concerning the day-to-day operations of the Fed, the president doesn't have a lot of say.

Inflation can be impacted by policy 

The House of Representatives controls the purse strings, though they don't do so in a vacuum. The president goes to Congress with a budget and then the horse-trading begins. Eventually, the House and Senate agree on funding bills and the president signs them into law.

This is an area where you could argue the president is more directly responsible for inflation. Deficit spending — borrowing from the future to pay for expenses today — creates artificial demand and is inflationary… particularly when the budget deficits are as large as they are today at over 6% of gross domestic product (GDP).

Furthermore, when the government borrows, it pulls capital out of the productive private sector. That extra dollar needed to fund the government's expenses is a dollar not being invested in a new factory, chip fabrication plant or office building. It creates demand without also creating supply, which is inflationary.

Trade policy also plays a role. Competitive free trade lowers costs and is inherently anti-inflationary. It's no coincidence that the great decline in inflation between 1980 and 2020 happened at a time when free trade agreements were en vogue and tariffs were in decline.

Tariffs make imports more expensive and discourage free trade. This is inflationary.

The president does not unilaterally set trade policy. While the law gives the president a large degree of leeway in setting tariffs, it's a collective effort along with Congress. But it is safe to say that trade policy is an area in which presidents can and do influence inflation.

What impacts inflation outside of politics?

Not all inflation drivers are political. Demographics play a role too, and some of our inflation today is driven by the labor shortage. No president can snap his fingers and make fully-trained new workers magically appear out of the ether.

Supply disruptions play a role too, as we saw in the pandemic.

Likewise, the prices of energy and commodities are determined by global factors. Yes, a president can make it easier or harder to drill for domestic crude oil, but a move by OPEC to increase or decrease production will generally take precedence over decisions made in Washington.

All of this is to say that the president's actions absolutely have an impact on inflation. A president who balanced the budget and encouraged free trade would likely preside over a country with lower inflation than a president who ran chronic budget deficits and raised tariffs.

But it's also not within the president's power alone to control inflation and it's not realistic to expect it.

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Inflation eased for a fourth straight month in July, keeping the Federal Reserve on track to bring interest rates down from a 23-year high at the next Fed meeting, experts say.

Headline July CPI increased 0.2% month-over-month, according to the Bureau of Labor Statistics, which was in line with economists' forecast. On an annual basis, CPI came in below 3.0% for the first time since 2021. The headline print rose 2.9% last month vs expectations for a 3.0% increase, or the same annual rate of inflation seen in June. 

Core CPI, which excludes food and energy costs and is considered a better indicator of future prices, increased 3.2% in July, which was in line with estimates. On a monthly basis, core CPI rose 0.2%

The BLS said that the shelter component of the consumer price index was responsible for most of the advance in inflation last month.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is decisively headed toward its long-term target of 2% before they move to cut the federal funds rate. The latest CPI report adds yet another dovish data point to the Fed's deliberations on interest rates, experts say.

"The report reveals that year-on-year consumer inflation remains on its downward path and is making further progress toward the Fed's 2.0% goal on a sustained basis," wrote Scott Anderson, chief U.S. economist at BMO Capital Markets. "Nothing in today's CPI report precludes a Fed rate cut in September, but it also doesn't scream out for a panicked half-point cut either."

As of August 14, futures traders assigned a 65% probability to the first quarter-point cut coming in September, up from 47% a day ago, according to CME Group's FedWatch Tool. Odds for a half-point cut in September fell to 35% from 53% the day prior. Taken together, traders currently assign a 100% probability to the FOMC reducing rates in September. Only the size of the cut would appear to be in dispute, per the futures market.

With the July CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"With CPI inflation at 2.9%, the Fed is getting closer to their goal. Average hourly earnings came in slightly below expectations, but this seems like a goldilocks report for the Fed. This is further evidence that consumers are re-anchoring inflation expectations in line with the Fed mandate." – Scott Helfstein, head of investment strategy at Global X 

"The Fed has clearly stated that it needed to see more data in line with recent prints – not better data – in order to justify a cutting cycle to begin in September. We believe this bar is amply met with today's data. Economic momentum is slowing. For a Fed that is concerned about its balance of risks, and who considers its policy position already tight, it's appropriate to expect a faster pace of normalization in the coming 12 months. The market is weighing the potential for a half-point cut. Though there is still plenty of time to demonstrate otherwise, we don't believe that today's data represents an urgent need to cut 50 basis points in September. Economic momentum is slowing, but signs that we are already in recession – such as a meaningful rise in jobless claims or deterioration in corporate outlook – are not yet flashing red." – Lauren Goodwin, chief market strategist at New York Life Investments

"The Fed's dual mandate is price stability and full employment, which suggests the risks are tilted firmly to the latter. We aren't sure what more the Fed needs to see to act, as the move higher in the unemployment rate lately should be in their crosshairs." – Ryan Detrick, chief market strategist at Carson Group

"The PCE index is down to 2.5% from 7.1% two years ago. This is the Fed's preferred inflation gauge, which is now closing in on the Fed's 2% target. Clearly, the Fed's medicine has been working, giving the opportunity to finally cut rates in September. While the expectation is a quarter-point cut, we believe a 50 basis point cut is entirely possible, given the nearly 1% rise in unemployment to 4.3%. The Fed's dual mandate is high employment and low inflation. The weak inflation number should allow the Fed to focus more on employment as the economy continues to weaken." – Eric Diton, president and managing director at The Wealth Alliance

"The relay race to Fed cuts is on! Today's CPI print of a rounded 0.2% cleared the way for a quarter-point cut in September, while not completely shutting the door on the chance of a 50 basis point cut. We saw expected declines in used car prices and airfares, as well as a modest decline in new car prices following last month's disruptions to dealer software systems. By contrast, shelter costs were hotter than the Fed would like. This leaves us in a zone where fixed income still has income, Fed is on track to cut some amount in September, and we've got two more legs of this race to go – CPI and nonfarm payrolls." – Lindsay Rosner, head of multi-sector fixed income at Goldman Sachs Asset Management 

"Today's CPI keeps the market on track for a potential rate cut next month. It was a little discouraging to see shelter tick back up after July's easing, but the trend toward lower inflation is intact. Getting the headline number under 3.0% for the first time in over three years was also an important milestone." – David Russell, global head of market strategy at TradeStation

"With today's CPI print very much in line with consensus expectations, this report supports the disinflation trend and a Fed that will be willing to cut rates in September. However, this CPI print does not scream out for a 50-basis point rate cut. Rather, a quarter-point rate cut for next month is more likely. With a renewed focus on its dual mandate, the Fed will now be more interested in the health of the economy – namely, retail sales and the initial jobless claims. Any weakness we see elsewhere in the economy would be more likely than today's CPI print to point to a 50-basis point rate cut in September." – Rajeev Sharma, managing director of fixed income investments at Key Wealth

"This inflation report, combined with the weaker July jobs report, shows a solid but slowing economy with inflation still modestly above the Fed's target. This puts the Fed's dual mandate of full employment and stable prices roughly in balance. However, we would expect to see continued volatility in stocks and interest rates as the markets could have an outsized reaction to data in either direction." – David Royal, chief financial and investment officer at Thrivent

"Consumer price inflation met expectations today, with headline year-over-year CPI slightly better than anticipated, dropping to 2.9% compared to the expected 3.0%. Last month, headline CPI was also at 3.0%. Considering this week's inflation data, including yesterday's PPI numbers, and the decline in both market-based and survey-based short-term inflation expectations to multi-year lows, the strong possibility of a Fed rate cut in September remains on the table." – Rusty Vanneman, chief investment officer at Orion Wealth Management

"This latest report is a green light for the Fed to start an aggressive rate cutting cycle – it is freed to focus on the full-employment aspect of its dual mandate. The futures market briefly priced in 50 basis points on the heels of the Yen unwind, but has settled in at a more measured 25 basis points. We expect the 25 basis points cut in September to be the first of many consecutive rate cuts as the Fed moves quickly toward its perceived neutral rate, currently projected to be 2.8%, which it believes to be neither stimulative nor restrictive policy." – Mace McCain, chief investment officer at Frost Investment Advisors 

"An in-line CPI report that supports the idea that inflation is no longer threatening is what we needed. It allows the Fed to continue shifting focus towards the employment half of their mandate. Labor market data between now and September will be the primary determinant of whether their first cut is 25 basis points or 50 basis points." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

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Money market accounts are variable-rate savings products. Most yields today are somewhere between 4% and 5.3%. That sounds like a nice return, but — there always is a but — there are two things to keep in mind: taxes and the prevailing inflation rate.

Two problems with money market yields

If the money market is held in a taxable account, the interest earned is taxed as ordinary income. For an investor with a money market account paying 5.3% and paying a combined 30% federal and state income tax rate, he or she will have an after-tax yield of 3.71%. However, that is before inflation. The U.S. inflation rate — measured by the CPI — as of the end of June was 2.97%. If we subtract the inflation rate from the after-tax yield, we get a real after-tax yield of 0.44%. In other words, a 5.3% yield looks enticing, but after taxes and inflation, we’re not really accomplishing much.

The other problem is today’s current income tax rates are set to expire at the end of 2025. What tax rates will be in 2026 is hard to forecast, but several provisions are set to expire. The Tax Foundation notes, “Without congressional approval, most taxpayers will see a notable tax increase.” That may mean more taxes owed on money market interest.

A further problem with money markets is today’s “hot” rates may not be around for that much longer. We haven’t seen rates this high since 2006- 2007. Even then, higher rates didn’t last that long. After 2008 rates stayed low for the next 14 years. How long will rates stay high is up for debate. A recent Financial-Times Chicago Booth poll has the Fed making one quarter-point interest rate cut this year. CNBC recently reported the “dot plot” of rate cuts indicates four reductions in 2025 totaling 1 percentage point. Still, it is anyone’s guess, and forecasts will be adjusted as the data comes out. The point is don’t get too comfortable with today’s rates, because we might have reached peak money market yields.

One solution

All this points to the two major concerns with money markets right now — taxes and variable rates. Of course, investors can buy long-term certificates of deposit to lock in the yield for longer, but the interest is still taxable. Municipal bonds can pay tax-free interest, but there is principal risk. A better approach may be a fixed deferred annuity.

A fixed deferred annuity is an insurance product that guarantees an interest rate for a set number of years. An example may be a fixed deferred annuity with a guaranteed rate of 4.9% for five years. The investor can lock in today’s rates for longer.

The other advantage of a fixed deferred annuity is the interest is tax-deferred. The interest accrues and no taxes are paid until withdrawn. This is unlike a CD or money market where both are fully taxable if held in taxable accounts.

What to know

One of the biggest downsides with a fixed annuity is the illiquidity. Generally speaking, fixed annuities come with surrender penalties. A surrender penalty is assessed when you withdraw money early — within the first five years if you purchased a five-year contract. Surrender penalties vary and can range from 7% of the pre-mature withdrawal in the first year to 3%-5% in year five and zero after year five. For this reason, you want to make sure you won’t need the money for the time period. Most carriers offer a 10% free annual withdrawal, which allows you to withdraw 10% of the contract each year without surrender penalties. 

For qualified annuities (those purchased with pretax funds, such as 401(k)s and IRAs), withdrawals are taxed as ordinary income. For non-qualified annuities (purchased with after-tax funds), the earnings portion of your withdrawal is taxed as ordinary income. In both cases, there are also IRS penalties if you withdraw from an annuity prior to age 59½.

Money in a fixed deferred annuity is not FDIC insured, but backed by the insurance carrier, so picking a good quality insurance company is important.

Most fixed annuities have costs designed into the contract. These costs are not netted from the guaranteed rate, but rather built into the contract, so 100% of the money you put into a fixed annuity goes to work from day one. Beyond the surrender penalties, there may be other administrative fees or charges for optional benefits. It’s best to consult with a qualified professional before making any purchase, and shopping around can help ensure a competitive rate.

Final thoughts: Building a diversified fixed-income portfolio

Don’t get me wrong, I still believe in municipal bonds, Treasury bonds and other fixed income investments, and I use them with my clients, but I wouldn’t bank on money markets being the sole source of return. If you peel back the onion, the after-tax and after-inflation yields may not be that attractive. Fixed annuities at least have the ability to defer taxes and lock in today’s rates for longer, unlike money markets whose rates are not guaranteed and can be fully income taxable. CDs may pay similar rates to fixed annuities, but the interest on CDs is taxable each year.

All in all, deferred fixed annuities can be worth considering as part of a diversified fixed-income allocation for tax-conscious investors wanting to lock in today’s interest rates for longer.

For questions or more information, please email the author at maloi@sfr1.com.

Michael Aloi, CFP, is an independent financial advisor with 25 years of experience in helping clients achieve their financial goals. He works with clients throughout the United States. For more information, please visit www.michaelaloi.com.

Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666.

This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results.

The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

There’s a lot of fear surrounding financial security in retirement. Many worry they won’t be able to afford to stop working, while others say they have no money saved for retirement.

A report from AARP found 20% of adults 50 and older have no retirement savings, and 61% are worried they won’t have enough saved to support themselves. Meanwhile, 7 out of 10 say they’re worried prices will rise faster than their income.

Imagining all the what-ifs in retirement can be paralyzing. Financially planning for the unknown sounds nearly impossible, but it doesn’t have to be. Creating a thorough financial contingency plan can help you prepare for the unexpected, minimizing your risk of financial loss and instability.

At its core, a financial contingency plan ensures your retirement savings can withstand various risks. This includes preparing for inflation, health care and medical expenses, the future of Social Security, longevity and even the death of a spouse. With so much at stake, how can you ensure your financial plan accounts for everything? The key is to break it down and attack each component one step at a time.

1. Establish an emergency fund.

You’ve likely heard the importance of establishing an emergency fund, but data shows a lot of people are lacking one. A recent Bankrate survey found more than 1 in 4 people say they have no emergency savings. Meanwhile, nearly 59% of U.S. adults say they’re uncomfortable with their level of emergency savings. Regardless of where you fall, the important thing is to establish one and contribute to it regularly.

Money contributed to the emergency savings account should be used to cover any unexpected costs from medical emergencies, home and car maintenance repairs, even the sudden loss of income. A good rule of thumb is to ensure you’ve got at least three to six months’ worth of living expenses saved in the account at all times.

2. Maintain a diversified investment portfolio.

The next component of your financial contingency plan should focus specifically on creating and maintaining a diversified investment portfolio. The key here is to balance your asset allocations to manage risk. This goes beyond investing in stocks and bonds. Investing in mutual funds, ETFs and real estate can help bolster your portfolio. Putting money into a high-yield savings account and opening an IRA is also helpful. But it’s not enough to diversify your investments — you must rebalance those allocations as time passes. This will help you manage risk and mitigate financial loss.

3. Prepare for health care costs.

Planning for health care is a particularly stressful aspect of retirement planning — especially with today’s life expectancy rates. On average, people are living longer now than they used to. According to the CDC, the average life expectancy for men is just under 75. For women, that number jumps to 80.

Unfortunately, the risk of illnesses and health conditions increases as we get older. Medicare is a helpful option, but it also might be a good idea to purchase long-term care insurance. This can help cover the costs of in-home care, as well as nursing home and assisted living facility stays.

Annuities with long-term care benefits may also be another option. Consider meeting with a financial adviser to review options that are best suited for you.

And don’t underestimate the power of a healthy lifestyle. Making the effort to be proactive about your health in the present can help you save hard-earned dollars in the future.

4. Create more than one income stream.

Establishing multiple streams of income is your next area of focus. Unfortunately, many jobs are doing away with pensions, and the future of Social Security is always hanging in the balance, mostly for those who are decades from retirement. Nevertheless, it’s not a good idea to rely on one income stream. This is where your investments become even more important.

Consider owning rental property, investing in CDs, working a side hustle or even creating online courses. A nice mix of various income strategies can help you maximize your earning potential, possibly allowing you to continue generating wealth well into retirement.

5. Be sure to account for inflation.

As you’re building your financial contingency plan, it can be easy to forget about adjusting for inflation. However, not accounting for inflation can financially hurt you down the road. Make investments that typically outpace inflation, such as equities and real estate. Inflation-protected bonds might also be another good option.

If you’re planning to receive a pension or purchase an annuity, see if they include cost of living adjustments (COLAs).

Finally, avoid holding on to too much cash. In periods of high inflation, your buying power decreases. So make sure you’re spreading your wealth and reevaluating your portfolio when inflation is on the rise.

Planning for the future can feel overwhelming at any phase of life — especially when it comes to retirement. However, breaking your plan down into these various categories can make it more manageable. Each step can allow you to focus on a specific area and plan accordingly. A financial adviser can help you figure out where to start, providing you with strategies that are best suited to your goals and financial situation.

These independent views and opinions are those of Joel Russo and are not necessarily the opinions of CoreCap Investments. Securities sold through CoreCap Investments, LLC, a registered broker-dealer and member FINRA/SIPC.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Inflation cooled markedly last month, the June Consumer Price Index (CPI) showed Thursday, raising the odds that the Federal Reserve could cut interest rates more than once before year-end, experts say.

Prices fell in June for the first time in almost two years. Headline CPI declined 0.1% month-over-month, for the first drop in 23 months, according to the U.S. Bureau of Labor Statistics. Economists forecast inflation to increase by 0.1% vs May. On an annual basis, CPI rose 3.0% in June – down from 3.4% the prior month – to beat estimates for a 3.1% gain. 

Core CPI, which excludes food and energy costs, likewise surprised to the downside, rising just 0.1% in June vs the previous month. Forecasts called for a 0.2% increase.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is decisively headed toward its long-term target of 2% before they move to cut the federal funds rate from a 23-year high. The latest CPI report adds a dovish data point to the Fed's deliberations on interest rates, experts say.

"Better than expected inflation readings in many key sectors should allow the Fed to start talking about adjusting policy in July and potentially allow the Fed to act in September," says George Mateyo, chief investment officer at Key Wealth. "In particular, housing, which has been elevated, showed some moderation. That said, we still see the Fed wanting to gain further confidence before cutting aggressively unless stress materializes in the labor market." 

As of July 11, futures traders assigned an 86% probability to the first quarter-point cut coming in September, up from 70% a day ago, according to CME Group's FedWatch Tool. 

With the June CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"The CPI report showed that prices for the consumer are slowing. The headline CPI month over month reported that prices actually fell for the first time in 23 months to -0.1%. This was lower than the forecasted 0.1%. This will be welcome news for the Fed although Chairman Powell did indicate in his remarks to Congress on Tuesday that there are risks to both sides of the economy. On the one hand we have the threat of inflation, which up to now has been the main point of focus for banks around the world including the Fed. On the other hand, with interest rates now on the restrictive side the Fed has to be careful not to stave off growth and push the economy into a recession." – Pete Tibbles, senior vice president, foreign exchange, financial risk management at BOK Financial

"The inflation print today appears to prove the hot data to start the year was mostly an outlier. It appears we've resumed the disinflationary trend lower – great news for the Fed. As economic data continues to slow, the implications are passing through to cost measures (and to the labor market where the unemployment rate is drifting higher). We imagine the Fed speak will turn more dovish, and the more promising data all but guarantees a September cut. We honestly wouldn't be surprised if the Fed went ahead with a quarter-point cut in July." – John Luke Tyner, portfolio manager at Aptus Capital Advisors

"Widespread disinflation; the Fed will cut soon. June's CPI data bring more evidence of broad-based disinflation, giving the Fed the green light to ease multiple times this year. Prices for core services ex-rents were unchanged for the second straight month. Looking ahead, the foundations remain in place for CPI inflation to drop further in the second half of this year. Labor market slack is building, dragging on wage growth and new rent increases, while retailers' margins are under mounting pressure from increasingly budget-conscious consumers. The CPI data will not stand in the way of the FOMC cutting interest rates quickly later this year in response to a faltering labor market. We continue to expect 1.25 percentage points of easing this year, beginning in September with a quarter-point cut. The sooner the better." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"Jerome Powell did his best Kobe Bryant impression this week, proclaiming the 'job's not finished' on inflation. But this CPI print below expectations will make the calls of the September doves pretty impossible to ignore. With the labor market no longer considered a source of inflationary pressure, markets will likely turn to employment data, where any softening will likely crank the volume up on September noise. Wake me up when it ends." – Dann Ryan, managing partner at Sincerus Advisory

"This report supports that we're getting close to the onset of Fed rate cuts. The risk narrative has become better balanced between inflation and a growth slowdown, and the June data showed a normalizing labor market and cooling price pressures. The soft landing remains in sight. For investors who are still feeling cozy holding onto excess cash, this should prompt consideration of whether that still makes sense. The case for extending duration is strengthening, and we see potential for stocks to continue making new record highs in the year ahead. Now, the focus shifts to earnings season to validate that optimism." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"Part of the reason for this decline in inflation was that household consumption, construction spending and the services sector inflation came in below analysts' expectations. Another area to note is rents – the cost of rent rose just 0.3% in June. This is the smallest increase in almost three years. As per Jerome Powell’s last Fed minutes, he needed to see more encouraging economic data before rate cuts are enacted. In a reversal of prior comments, he recognized that the economy is slowing, and he appears to be setting up for a September rate cut. Although it appears a September rate cut is more likely, we still have two more inflation prints prior to the September Fed meeting – anything can happen, and the Fed is closely monitoring the situation." – Robert Conzo, CEO and managing director at The Wealth Alliance

"Today's CPI report is a good scenario for the Fed and could help change Fed Chair Powell's perspective. Remember that just yesterday Powell testified he believes inflation is receding, but he was reluctant to say it’s moving substantially down toward the Fed’s 2% goal, but this CPI could change all that. The 3.3% core reading was the smallest since April 2021, and the so-called super core inflation – core services less shelter – was the lowest level in nearly three years. The June CPI report should give the committee confidence that the disinflation narrative is tracking and that rate cuts should begin in September." – Ivan Gruhl, co-chief investment officer at Avantax

"Today's data provide a welcome indication to the Fed that inflation is indeed coming down after several hot monthly numbers at the start of the year. Despite today's favorable CPI report, a rate cut at the Fed's meeting on July 31 remains unlikely. In the absence of a meaningful uptick in inflation in July or August, we would anticipate a rate cut at the September meeting. Overall, we see an economy that is weakening but not in imminent risk of recession. Today's report should be supportive of both equities and bonds." – David Royal, chief financial and investment officer at Thrivent

"June headline prices fell for the first time in over two years due to declines in energy and vehicles prices and substantial cooling in shelter price increase. This is great news when combined with last week's report on labor market moderation to consider more relaxation on monetary policy than anticipated. The federal funds rate dot plot from the June summary of Projections indicates that the Federal Open Market Committee (FOMC) members are split on one or two rate cuts this year. If the trend in inflation in the previous two months continues, the likelihood of having two rate cuts this year increases." – Dawit Kebede, senior economist at America's Credit Unions

"This morning's inflation report was much better than expected, showing a decline in headline inflation driven by lower energy costs. Core inflation also posted its smallest monthly gain since August 2021, helped by a slowdown in shelter growth and lower auto prices. While CPI readings remain high relative to the Fed's 2% target, they have come down sharply and are moving in the right direction. Overall, it's a very positive report for the Fed, which increases the likelihood of rate cuts in the second half of the year, with the September FOMC meeting firmly in play." – Mike Cornacchioli, senior vice president for investment strategy at Citizens Private Wealth 

"Powell has been very careful to leave the Fed's options open when it comes to rate decisions. He refuses to give any indication whether there could be future cuts or even hikes but has been clear that he wants to see more good data to strengthen the Fed's confidence that inflation is making its way to 2% before deciding to cut rates. I feel the print this morning would be considered good data even by Powell's standards. In addition to the data this morning we've been some cooling in the labor market, the tightness of which has been another hurdle that Powell has mentioned in the past, so when taken together the odds of future rate cuts become more realistic. The Fed doesn't rely just on the CPI report but should be indicative of a larger disinflation narrative when Core PCE, the Fed's preferred gauge, comes out on July 26. There are still two more inflation and jobs reports before the next meeting in September but should the disinflation progress stay on its current path there is a real possibility for multiple cuts in the latter part of the year rather than the one that was previously being priced in." – Clayton Allison, portfolio manager at Prime Capital Investment Advisors

"Investors have waited for a long time for shelter to soften and they got it in June. Given rising inventories in housing, this sizable component of the price index is finally starting to give the Fed what it needs to see for rate cuts. Goldilocks is here and a September cut looks more likely than ever." – David Russell, global head of market strategy at TradeStation

"Combined with the weaker than expected June jobs report, today's inflation reading builds a stronger case for a Fed rate cut in the coming months. It remains unlikely that the Fed will move at its meeting later this month, but if the dual trends of a weakening labor market and lower inflation continue, it will likely put the first rate cut in years firmly on the table for the FOMC's September gathering." – Eric Merlis, managing director and co-head of global markets at Citizens

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Inflation cooled markedly last month, the May Consumer Price Index (CPI) showed Wednesday, keeping the Federal Reserve on track to cut interest rates at least once before the end of 2024, experts say.

The data come too late to affect the Federal Open Market Committee's (FOMC) June meeting, experts note, while stressing that a data-dependent central bank will likely need to see more dovish developments before it enacts its first quarter-point reduction to the short-term federal funds rate.

Nevertheless, the inflation data was good news for market participants and consumers alike. Headline CPI was unchanged last month after rising 0.3% in April, according to the U.S. Bureau of Labor Statistics. That was the slowest rate of headline inflation seen in almost two years. On an annual basis, CPI increased 3.3% in May, down from 3.4% the prior month.

Meanwhile, core CPI, which excludes food and energy costs, increased 0.2% last month after rising 0.3% in April. 

"May's tiny increase in the core CPI – the smallest since August 2021 – should be good enough for the median FOMC participant to envisage two quarter-point reductions in rates in 2024, taking out only one of the three easings projected back in March," wrote Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is down to its 2% target before they move to cut the fed funds rate from a 23-year high. The latest CPI report adds a dovish data point to the Fed's deliberations on interest rates, experts say.

As of June 12, futures traders assigned a 61% probability to the first quarter-point cut coming in September, up from 47% a day ago, according to CME Group's FedWatch Tool. 

With the May CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"This report builds the case that inflation has resumed its downward path after an unanticipated surge in the first quarter. If sustained, it will keep Fed rate-cut expectations that we have penciled in for September and December alive and well. Restrictive monetary policy has more work to do, and the Fed will remain patient and watchful. However, today's far softer CPI report will go a long way in making the case that it can soon safely ease off the monetary brake pedal without risking another inflation episode." – Scott Anderson, chief U.S. economist at BMO Capital Markets 

"May CPI was softer than expected across headline and core readings, indicating the disinflation process is playing out. This keeps the Fed on track for cuts in 2024, with the first cut likely coming in September, especially with the unemployment rate at 4% and risk of going higher." – Sonu Varghese, global macro strategist at Carson Group

"Although the inflation trend continues to decline, the rate of change is becoming less and less. This slower rate of change coupled with persistently higher components of CPI such as shelter and insurance costs, is making the Fed rate cut calls difficult to navigate. The U.S. is under pressure to enact 2024 rate cuts considering the ECB's recent rate cut. There is continued concern that Powell is holding a restrictive stance which could fuel potential recessionary fires. The timeline of future rate cuts continues to be evasive. The slower rate of change coupled with conflicting inflationary signs, such as volatile energy costs, continue to push rate cuts further and further into the future. We believe June rate cuts are off the table and one rate cut prior to December 31, 2024 is a possibility, but not definite." – Robert Conzo, CEO and managing director at The Wealth Alliance

"Today's report was largely what the Fed and the markets were hoping for. Inflation was slightly below expectations on both headline and core, both month over month and year over year. Longer-term rates should move lower on this report. Despite today's cooler inflation data, we expect the Fed to hold steady at today's meeting. An interest rate cut later this year looks increasingly likely, however. One implication of moderating inflation and declining interest rates could be a tailwind for small cap stocks. These companies often have higher debt levels and have struggled in a rising rate environment. Lower rates could help broaden a narrow equity market." – David Royal, chief financial and investment officer at Thrivent

"Top to bottom, this was an encouraging inflation report for the markets. And while today's CPI report certainly doesn't guarantee anything, it was enough to quash re-inflation narratives while keeping rate cuts firmly in the discussion this fall." – Ivan Gruhl, co-chief investment officer at Avantax

"May's inflation numbers suggest that prices are trending in the right direction but at an insufficient pace to support relief from interest rates before September. Alongside a robust jobs report indicating few significant weaknesses in the labor market, the Fed has breathing room to keep their high standards for progress on inflation, with a September timeline providing ample opportunity for further data to confirm that prices are moving sustainably toward optimal levels. The recent contraction in headline CPI owing to lower energy prices is an important step in the right direction, as the lower production costs will help drive prices down on both goods and services for consumers." – Noah Yosif, chief economist at the American Staffing Association

"The Fed has quite a bit to consider given today's CPI report coming in flat from the month prior. Markets cheered that it was better than expected and below expectations. The Fed will consider this carefully as they are aware that if they wait too long with rates this high before beginning to cut, it could throw certain sectors that are already experiencing slowdowns into a recessionary environment." – Kathleen Grace, managing member and CEO at Fiduciary Family Office

"Households pulling back on discretionary spending have been noted among a number of earnings reports and we expect that this dynamic will take some of the air out of core goods prices. Shelter inflation slows more gradually, but is a relatively high weight within the CPI measurement that the Fed watches closely. Since the increase in rates is now fully represented in housing data, the lagged impact of shelter disinflation should work its way through CPI numbers and carry through the next few months, further conviction that rate cuts will begin soon." – Sarah Henry, managing director, portfolio manager at Logan Capital Management

"We squarely believe the CPI number was not weak enough to change our view on July's meeting. While September may be on the table, today would have had to be the first of a handful of inflation data prints that went right, which it did. It does remain challenging, however, for inflation to cool with the backdrop of the summer's heat. Let's see what the Fed forecasts this afternoon. This is good news, but we will need more of it." – Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management

"Finally, a surprise to the downside in CPI. Markets should like this news today as movement toward the Fed's 2% inflation target further justifies a nearer timeline for rate cutting. At the same time today, however, market participants will be bracing this afternoon for Powell's release on June's interest rate decision and, more importantly, a read on the Fed's appetite for rate cuts at this point in time." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"Inflation is slowing even as the economy accelerates. Lingering pandemic effects like auto insurance are fading and normal cyclical forces are hitting items like energy and transportation. Things are playing out as the Fed hoped, so Jerome Powell will probably be feeling good this afternoon. September could be back in play for a rate cut. The bears have nowhere to run to and nowhere to hide." – David Russell, global head of market strategy at TradeStation

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For expert advice on shrinkflation and what to do about it, Kiplinger interviewed Edgar Dworsky, a longtime consumer advocate and founder of Consumer World, which provides consumer news, alerts about common scams, and advice on how to save money.

What is "shrinkflation," and why is this phenomenon occurring?

Manufacturers are facing increased costs across the board. Prices of raw materials, labor and transportation have surged, primarily due to rising fuel costs. To offset these expenses, companies have several options. They can increase prices, but noticeable price hikes could lead to consumer backlash. Consumers are very price sensitive, and they’ll notice if their orange juice goes up from $2.99 to $3.29 a carton. Another option is reformulating products with cheaper ingredients, but that risks compromising quality. They can absorb the costs, but that’s not sustainable. So instead, many opt for a subtle reduction in product sizes, effectively implementing covert price increases that often go unnoticed by consumers. 

How can consumers combat this trend?

Consumers must become vigilant about net weights. Paying attention to details like the number of tissues in a box or the weight of cereal boxes is crucial. You can use unit pricing on the store shelf to figure out which is the best deal per ounce or per 100 count. You can also complain to companies, explore competing brands or opt for store brands, which tend to resist downsizing.

With prices still elevated post-pandemic, what’s the most effective way to save money on groceries?

Most people live near two or three different supermarkets, so being selective and taking advantage of bargains is key. Before shopping, review supermarket ads for sales so you can identify the best deals and make bulk purchases to maximize savings. If an item is nonperishable and really a sensational bargain, stock up. Why buy only one bottle of apple juice if it’s on sale? 

It’s also important to develop price awareness so you can identify fluctuations and seize opportunities. Be aware of what you usually pay — $2.99 for XYZ cereal, for example — so you can spot a good deal when it’s advertised or when you’re in the store and you can recognize when the price has changed. Vigilance against deceptive advertising is essential, although there hasn’t been a lot of deceptive advertising at supermarkets. Department stores, however, have faced scrutiny for misleading promotions, often inflating regular prices to exaggerate discounts.

Do you recommend using coupons to cut grocery store costs?

Using coupons, especially at stores offering double coupons, will save you money. Using digital coupons will also cut costs, but you need to load those onto your digital loyalty card account, usually before you go to the store, and that can be a pain in the neck. 

Unfortunately, consumers who aren’t computer savvy are losing out on those deals. If you’re one of those folks, go to the customer service desk and ask whether there’s some way you can take advantage of the digital coupon prices. Some stores are beginning to make accommodations for seniors and others who can’t use digital coupons. 

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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In the heart of a political showdown, as the nation edges closer to the 2024 presidential face-off between Democratic Vice President Kamala Harris and her Republican challenger, former President Donald Trump, a different kind of battleground is quietly brewing — the financial markets. Investors are aligning their sights not just on the political horizon, but on the ripples the election might send through the economic landscape.

As the election season dominates headlines and newscasts, investors may be tempted to adjust their portfolios to keep pace with the heated clashes and escalated rhetoric. But before taking any meaningful action, it’s important to view things through a historical lens to uncover layers of financial resilience that challenge the notion of election-year market volatility.

Historical stock market trends during presidential election years

The historical stock market trends during U.S. presidential election years reveal a fascinating interplay between politics and market performance, shedding light on strategic investment decisions and long-term financial planning. Since 1952, the S&P 500 has experienced an average gain of 7% during presidential election years, as reported in U.S. News & World Report.

Market predictions tied to election outcomes have shown a remarkable accuracy rate, with the stock market correctly predicting the presidential winner in 87% of cases since 1928, as highlighted by Forbes. A declining market prior to the election has often been an indicator of the incumbent party's defeat.

A report from BlackRock found that despite the political party in power, the stock market has maintained an average return of 11.6% during election years since 1926, slightly outperforming its overall average annual return. Interestingly, a T. Rowe Price report found that the year following a Democratic win sees an average market gain of 11.3%, compared to 6.6% after a Republican victory.

Election year volatility and investor behavior

Election years bring their own brand of market volatility, which tends to be lower on average, except in the immediate months before and after the election. Notably, the T. Rowe Price report found that market turbulence spikes if the incumbent party is expected to lose but usually stabilizes post-election.

The government's composition, whether under single-party control or a divided government, has varied impacts on market performance. While single-party dominance shows no significant correlation with market trends, according to a U.S. Bank report, a divided government has been statistically linked to market performance, providing evidence that the balance of power influences market dynamics more than the controlling party itself.

Long-term investment perspective during election cycles

Beyond the electoral cycle, economic indicators such as growth rates, interest rates, inflation and corporate earnings hold more sway over market returns than election outcomes. Therefore, while the election may cause more buzz and excitement, it is important for investors to focus on broader economic trends rather than short-term election-related noise, aligning with long-term strategic investment goals.

Historical data highlights the minimal long-term effects of elections on market performance, with the S&P 500 showing resilience and positive returns regardless of the electoral cycle. Economic and inflation trends consistently outweigh electoral outcomes, so it is wise to maintain a steady investment approach based on market fundamentals.

Investors should consider maintaining diversified strategies and avoid making hasty decisions based on short-term volatility, with long-term data reinforcing the value of adhering to a well-considered investment plan. This strategic focus on economic growth, interest rates, inflation and corporate earnings is critical to navigating the uncertainties of election cycles while pursuing long-term financial objectives. Despite the speculative fears and heightened discussions around the immediate impacts of election outcomes, the long-term influence on market performance remains marginal.

Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The algorithm is winning. We live in a time where every click we make and every step we take generates metadata; sometimes just uttering a thought out loud can trigger an ad on a social media feed. This is also an age where disinformation and political leanings have been weaponized to great effect on social media. So how does the algorithm affect the leading sentiment indicators studied by investors today? Based on a comparison of the current economic cycle and the Great Financial Crisis in 2008, quite a lot.

Late last year, the market had already decided the Federal Reserve Bank had reached the end of its interest rate tightening cycle. Investors were mildly optimistic the Fed would engineer a “soft landing” with respect to a recession. Inflation, which peaked in June 2022 at more than 9%, had drifted back down to 3.2% by October. This downward trend in inflation was happening not because demand had cratered. In fact, the U.S. gross domestic product (GDP) was still up nearly 5% in the third quarter of 2023.

The U.S. consumer was still spending. And they were still working. The U.S. unemployment rate had drifted up slightly but was still under 4% — or what the Fed considers “neutral” or full employment. To top it all off, the S&P 500 was up more than 20%. Most economic indicators were positive. Since it’s the direction of the economy that typically drives expectations, it would have been reasonable to see consumer sentiment ticking up in kind. That was not happening.

Comparing sentiment during big events

One of the longest-running and most referenced measures of consumer sentiment, the Michigan Consumer Sentiment Index (MCSI) was launched in the 1940s and aims to gather opinions from Americans on their expectations for spending and inflation and their overall feeling about the business climate and employment. At the end of 2023, the MCSI came in at 69.7. That is not exactly bubbling with enthusiasm. For context, the MCSI’s all-time low was 50 in June 2020, during the COVID-19 pandemic, and its all-time high was 112 in January 2000, during the tech bubble. The average reading is 84.9.

By comparison, on September 30, 2008, the MCSI came in at a very similar 70.3. However, the backdrop was quite different. Lehman Brothers had just collapsed earlier that month. The S&P 500 had already slid 20% anticipating the subprime mortgage crisis. In stark contrast to the fourth quarter in 2023, U.S. GDP had plummeted to 2.3% from 5.0% a year earlier. On top of the data, the average person was hearing daily about doomsday scenarios and a global financial meltdown. And yet, the MCSI was actually higher than in December 2023. What could explain that?

Perhaps inflation was the culprit? It was much higher in 2023 than 2008 and the highest it had been since the early 1980s. But expectations for inflation (and expectations in this case really do matter) had improved dramatically. Inflation in September 2008 was at 2.5% vs 3.8% at the end of 2023. But that 3.8% had been rapidly descending throughout the year (as predicted). Since the long-term average for inflation is 3.7%, it is unlikely the rate alone would lead to Great Financial Crisis-levels of pessimism.

Fear of a Fed misstep?

Another possibility is that the fear of a Fed misstep had the average person pessimistic. After all, as inflation ticked up, so too did the retrospectives about the Fed’s missteps in the 1970s that ultimately led to 4 million jobs being lost before inflation was whipped. However, the market certainly didn’t seem to fear that result en masse in 2023. The S&P 500’s 11% gain in the fourth quarter, although AI-driven to a large degree, was fueled in part by a belief the Fed would not misfire.

It is also possible that those creating economic news are affected by these trends, too. The Brookings Institution studied the San Francisco Fed’s Daily News Sentiment Index and compared it to economic data. The Daily News Sentiment Index creates a daily time series of sentiment from analyzing economic news stories from 24 daily newspapers. Brookings found that economic news itself had become more pessimistic since 2016 and had diverged from economic data in the same manner as consumer sentiment. Brookings found that from 1988 to 2016, news “sentiment” changed consistently with the actual economic data. Since 2016, the economic data and news sentiment decoupled.

Social media’s rise

There is one explanation for the 2023 year-end consumer (and news) cynicism that seems far more likely: social media — and its evolving influence in society since 2008.

In 2008, Facebook and Twitter were nascent endeavors still years away from going public and wielding massive influence. TikTok was nearly a decade away from relevance. It was the first year that the internet overtook print newspapers as a primary news source. TV news in 2008 had already morphed from the days when CBS Evening News anchor Walter Cronkite was voted the Most Trusted Man in America in 1972. But in 2008, television was still the primary news source and had yet to compete with mass clicks, tweets and disinformation for viewership. This changed dramatically over the past 15 years.

How information is disseminated and used can be transformative to society. Starting in the 15th century, Gutenberg’s printing press distributed religious doctrine as well as scientific discovery to the masses. Franklin Delano Roosevelt leveraged the new radio technology to deliver Fireside Chats that could bypass the press and talk directly to Americans about the New Deal. The FCC’s 1987 repeal of the Fairness Doctrine empowered the rise of politically aligned media and allowed conservative talk shows, in particular, to wield considerable influence.

Echo chambers of like-minded views

Social media transformed society, too. It hastened the speed of news dissemination, something critical during natural disasters or global pandemics. But it enabled users to self-select their experience, building an echo chamber of like-minded views. The algorithm amplified the echo, serving up ads (informative or disinformative) and content in service to other actors. The result(s)? Studies have connected social media use to political polarization and decreased mood and consumer sentiment. Recently, a study out of the U.K. correlated MCSI data to social media influencer posts, finding “consumer sentiment is affected by social media influencers and is not just a reflection of economic variables.”

The influence of social media on society affects more than just the consumer sentiment indicators used by investors. But with artificial intelligence just kicking in, the algorithm is going to wield even more influence going forward. Investors will need to develop some sensitivity analysis when evaluating consumer sentiment — and seek to better understand the intersectionality of consumer sentiment, political polarity, macroeconomic data on the markets and consumers’ own personal finances.

The information in this publication is based primarily on data available as of March 31, 2024, that has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation are not guaranteed. In addition, this publication contains the opinions of the authors as of that date and such opinions are subject to change without notice. We do not think this publication should necessarily be relied upon as a sole source of information and opinion. The use of Generative Artificial Intelligence may present risks such as undetected errors, defects, and security vulnerabilities. This publication is not a recommendation of, or an offer to sell or solicitation of an offer to buy any particular security or investment product. Bailard cannot provide investment advice in any jurisdiction where it is prohibited from doing so.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The April Consumer Price Index (CPI) showed that inflation moderated last month, but a data-dependent Federal Reserve will likely need to see more dovish developments before it enacts its first interest rate cut, experts say.

Headline inflation rose 0.3% in April vs 0.4% the previous month, the Bureau of Labor Statistics said Wednesday, matching economists' forecast. On an annual basis, headline inflation increased 3.4%. That was lower than March's print of 3.5%.

Core CPI, which strips out volatile food and energy costs and is considered a better predictor of future prices, rose 0.3% month-to-month. That was slower than the 0.4% increase seen the previous two months, and also matched forecasts. On an annual basis, core CPI rose 3.6%, or the lowest level in three years, vs the 3.8% rate seen in the prior two months.

"The smallest increase in the [monthly] core CPI since December will reassure the Fed that monetary policy is tight enough to bring inflation eventually back to the 2% target, though the run rate still needs to slow further to trigger rate cuts, unless payrolls tank first," wrote Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is down to its 2% target before they move to cut the federal funds rate from a 23-year high. The latest CPI report adds a dovish data point to the Fed's deliberations on interest rates, experts say.

As of May 15, futures traders assigned a 53% probability to the first quarter-point cut coming in September, up from 46% a month ago, according to CME Group's FedWatch Tool. 

With the April CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"The April CPI report reveals an encouraging signal that consumer inflation pressures may be moderating a bit more visibly across a broader cross-section of categories. If sustained, it could keep Fed rate-cut expectations for September and December alive and well. Clearly, restrictive monetary policy has more work to do, and the Fed will remain patient and watchful. However, today's softer CPI and retail sales reports do measurably reduce the already low probability of additional rate hikes from the Fed." – Scott Anderson, chief U.S. economist at BMO Capital Markets 

"The April CPI and PPI data now bode well for the Fed's preferred PCE inflation metric, which will likely come in softer than what we saw in the first quarter. It does keep the Fed in a holding pattern, with no rate cuts until September at the earliest and a rate hike looking even less likely." – Sonu Varghese, global macro strategist at Carson Group

"Confidence restored. Today's CPI report marked a modest deceleration from the prior month and should restore the Fed's confidence that a continued pause in the near-term is appropriate and rate cuts later this year may be necessary. One month does not a trend make, but the trend of moderating inflation and slowing in consumer spending is favorable for risk assets. All eyes will shift next to the labor market, which will likely set the course for the Fed in the weeks ahead. What will really get the Fed’s attention was the slowdown in retail sales, which were weaker than expected." – George Mateyo, chief investment officer at Key Wealth

"The smallest increase in the core CPI since December will reassure the Fed that monetary policy is tight enough to bring inflation eventually back to the 2% target, though the run rate still needs to slow further to trigger rate cuts, unless payrolls tank first. The slowdown in April was encouragingly broad-based. Looking ahead, the case for expecting a further slowdown in core CPI inflation remains compelling. The foundations, therefore, are in place for a further deceleration in the core CPI this summer, enabling the Fed to start easing in September. But if payrolls roll over as fast as the NFIB survey implies, don't rule out July." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"Nice to see underlying inflation data cool in April after three months to start the year of troubling prints. Fears of entrenched inflation should be eased with signs of weaker retail sales internals (with downward revisions) which have been one of the main catalysts of above target inflation (i.e., the rock solid consumer) in addition to lagged housing data. On net, today provided a round of dovish data vs expectations, which has rates rallying and stocks approaching all-time highs. We'd caution that it is just one print (that is still notably above target) coming off the back of three hot prints to start the year." – John Luke Tyner, portfolio manager at Aptus Capital Advisors

"Today's CPI number met expectations with no major surprises. However, it remains inconsistent with the Fed's 2% target. This should put the Fed at one to two cuts by the end of this year and will likely remove any thought of another hike. The market's response has more to do with the disappointing retail sales number, potentially signaling an uphill battle for second quarter GDP growth. As more data comes out that points to slower top line growth and slower labor demand, investors should be looking at the Fed's probable rate cut trajectory and considering pushing out duration. Once the Fed cuts, yields on cash could quickly disappear." – Mike Sanders, head of fixed income at Madison Investments

"The Fed is looking for a long-term shift, not a short-term signal, so one positive CPI print is unlikely to move the needle very far on monetary policy, but it's a start after so many upside surprises earlier this year. However, cracks are emerging in consumer spending and labor market activity, suggesting its higher for longer regime might not be economically healthy for much longer. This means the Fed might have to settle for another three or four soft prints to indicate the beginning of a final descent before loosening rates and relieving pressure on the economy." – Noah Yosif, chief economist at the American Staffing Association

"The market has reacted positively to in-line numbers given relief that numbers did not surprise to the upside as had been the case with several of the more recent reports. Key though is that this is one data point, and I think policymakers are focused on recent trends in inflation as it relates to policy direction. As such, the probability of a June rate but hasn't budged at all since the beginning of the week and currently stands at less than 5% chance. The next important points for inflation will come with the next PCE report at the end of this month to confirm this CPI report as inflation has stopped surprising to the upside. Policymakers will likely want to see several reports on both the PCE and CPI that are trending flat to down in order to shift their stance and be more open to the possibility of a rate cut. Right now the most likely time period for a rate cut based on market expectations is in September." – Steve Kolano, chief investment officer at Integrated Partners

"Shelter didn't ease as hoped, but there was improvement in transportation and healthcare. The number wasn't perfect, but we're staggering toward lower inflation. Weaker data on retail sales and the Empire Index also suggest growth is slowing, which keeps rate cuts on the table. It was a trifecta of dovish news." – David Russell, global head of market strategy at TradeStation

"This week's inflation data keeps hopes of an initial cut to the Fed's main policy rate in July alive, but a July cut would require these small, but positive, steps back in the direction of inflation moderation to be quickly supported by a combination of more meaningful positive inflation news and/or more concrete signs of labor market weakness over the next 10 weeks. When combining the appropriate components from this week's PPI and CPI reports, the read through for this month's core PCE inflation readings supports a drop back to a 0.2% print. The market is now pricing in two cuts for 2024; as an average for the range of potential outcomes, two cuts in 2024 is quite reasonable. However, we believe that not enough cuts are priced for 2025 and 2026." – Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors

"The move higher in stocks and lower in yields for bonds is not so much because this report will quicken the pace of rate cuts. We still expect September to be the first rate move, but because it did not continue a string of hotter than expected readings. While year-over-year readings continue their descent, shorter term readings are still at levels which preclude the Fed from easing in the short term."  – Steve Wyett, chief investment strategist at BOK Financial

"Today's core CPI came as a welcome sign for the markets. You've got to go back to February to find the last CPI inflation report that didn't surprise to the upside. Falling oil prices in April helped take some pressure off the headline number, but core prices, particularly services, remain elevated. Still, fears of inflation re-accelerating seem to be tempered for now, as average hourly earnings showed some moderation from March. While today's report does little to guarantee any rate cuts in the second half of this year, it keeps them on the table. With core inflation now the lowest in three years, today’s report allows the Fed to be patient with policy." – Ivan Gruhl, co-chief investment officer at Avantax

"Today's highly anticipated report should be well received by equities. While inflation remains modestly above the Fed's target, a couple more months similar to today's report could allow the Fed to begin cutting rates later this year. More importantly, the report signals some welcome relief for consumers in areas that have been pain points for many families. Food overall was flat for the month, with food at home (e.g., groceries) down 0.2%, and both new and used car prices declined for the month. Slowing inflation should help improve the general economic outlook of many Americans." – David Royal, chief financial and investment officer at Thrivent

"Overall, PPI and now CPI are showing a mixed result in the Fed's inflation flight, giving us a clear picture of what PCE will be later this month – progress being made, but more required. It will take some time for the Fed to feel confident in lowering rates, and what's their incentive to do so now? The U.S. has a tight labor market, strong credit conditions and a strong consumer. The Fed will likely continue to adjust its policy on QT in the background to ensure credit and liquidity conditions remain stable, along with longer term interest rates. The U.S. economy remains strong and resilient, and lower rates coming in Europe should continue to drive demand for U.S. goods and services, further supporting the U.S. economy." – Jason Barsema, president and co-founder of Halo Investing 

"The Federal Reserve has been clear in its intent to lower policy rates and is looking for any softening in the inflation data as an excuse to follow through on its dovish bias. Today's CPI release will provide the Fed and bond investors some temporary comfort after the reacceleration in Q1, but inflation is still trending well above the central bank's goal of near 2%. A decisive further deceleration will be required before the Federal Reserve can cut rates. However, our view is that core CPI inflation will remain sticky and hold well above 3% this year, significantly limiting the window for rate cuts. The pandemic-related distortions have already unwound, rent inflation will ease but less than appreciated, and services inflation will remain rapid because the U.S. economy continues to expand above its long-run trend at a point when there is no slack to create disinflationary pressures ahead." – Phillip Colmar, global strategist at MRB Partners

"Inflation numbers were exactly what a lot of market participants were hoping to see after two months of reacceleration. Core goods appear to be the driving force this month with large declines in mainly discretionary spending areas like used vehicles, furniture, sporting goods, pet products and other general recreational goods. This makes sense when taken in combination with the retail sales numbers that were released this morning as well, which came in very weak vs March's figure. It's starting to feel more and more that the consumer may be tiring and pulling back on non essential spending. Services still appear a bit sticky, particularly shelter rents continue to be a headwind, but the moderating price pressures should re-ignite talk about rate cuts at the upcoming Fed meetings." – Clayton Allison, portfolio manager at Prime Capital Investment Advisors

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