Inflation is leading to a rise in the cost of living, which is the price Americans pay to meet basic needs such as food, housing and clothing.
“The idea behind cost of living is [answering the question] ‘How much money on average does it take to
live?’” Tyler Killen, personal finance teacher at NHS, said.
The cost of living is most influenced by inflation, or the value of money based on increasing prices in stores or restaurants.
“When inflation increases, that increases the price of basically all goods and services because businesses have to account for that,” Killen said. “That means our costs as citizens, as people [and] as consumers go up as well, and so the cost of living is a way of trying to identify ‘What does it take to make it?’”
Inflation leads to an increase in a wide variety of costs.
“There’s a variety of things that can impact inflation––unemployment rates, interest rates––and we’ve seen that recently, how interest rates have been on the rise [and] to try and combat inflation that’s been going on,” Killen said.
A method that businesses utilize for their employees is the COLA method.
“One thing that … good employers do is they do what’s called a COLA –– a cost of living adjustment––and so outside of a normal … raise or bonus, they are trying to adjust for the cost of living increase by just giving employees a raise to keep up with that level of inflation,” Killen said. “Because if inflation is seven percent and you get a five percent raise, well that’s great, but overall you’re buying two percent less than you were even before that happened … that’s the idea behind it.”
Even as prices for basic needs like clothes and groceries increase, it is possible to combat inflation.
A large part of the cost of living is grocery expenses, NHS Life 101 teacher Marcy Wood suggests creating a budget to know what is needed to meet the needs of the family.
“The easiest, fastest way to determine your food budget is to write down everything you spent the month before,” Wood said. “Use receipts, or if you don’t keep those, look at all of the transactions on your debit card. Determine your wants versus your needs and go from there. It might take a couple of months to figure out what is right for you and your family.”
There are ways that one can keep food spending in check, Wood recommends economizing when grocery shopping.
“You should always look at your budget first,” Wood said. “If you have a small budget for … [groceries], you have fewer options. You can economize, where you look for the cheapest prices and only spend when necessary [which] … requires a lot of planning, … or you can optimize, where you buy in bulk so the unit price of items is smaller.”
When trying to save money, shoppers should also think about the nutritional value. This step can make a big difference.
“It seems like healthier food is more expensive than unhealthy food,” Wood said. “If you go to McDonald’s, a cheeseburger and fries is cheaper than a salad. At the grocery store, fresh fruit and veggies aren’t always more expensive, but they go bad fast. So, there are options: meal planning, buying in bulk and buying frozen fruits and vegetables for less waste.”
With the rising cost of living and the economy’s complexity, it can be difficult to stick to a strict budget.
“Anytime you have a budget, you will always have variances –– no one is perfect,” Wood said. “Sometimes you need that coffee from Scooter’s, … but everyone should always have an emergency fund or pull money from another category in your budget.”
Outside of groceries and other basic needs, the cost of living also impacts the real estate market.
“Rising costs of living rates can have significant implications for the real estate market,” real estate agent Christian Martin said. “Higher living costs may lead to increased demand for affordable housing options, drive up rental prices and impact property values in desirable areas. Additionally, rising living costs may influence housing preferences, with individuals and families seeking out more cost-effective housing solutions.”
Due to this relation, the cost of living and housing prices are tied together, rising and falling at the same time.
“The cost of living directly influences housing prices, as housing is a significant component of the overall cost of living,” Martin said. “When the cost of living rises … landlords adjust their prices to cover increased expenses. Conversely, a decrease in the cost of living may lead to lower housing prices as demand decreases.”
Martin said current trends in the cost of living can lead to challenges for individuals seeking basic needs.
“Rising living costs could result in affordability issues for housing, healthcare and other necessities, potentially leading to socioeconomic disparities and a need for policy interventions to address these challenges,” Martin said.
Although the prices for food, activities and especially housing are on the rise, there are ways to get support and learn how to spend money effectively to meet basic needs.
“Governments may employ various measures to address rising living costs,” Martin said. “… [This means] implementing policies to control inflation, providing subsidies or assistance programs for essential expenses like housing and healthcare, investing in infrastructure to improve efficiency and reduce costs and promoting economic development to create job opportunities and stimulate growth.”