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With the new year right around the corner, you may be wondering what’s in store for the economy in 2023. To help ensure your financial success, here are some insights into the recent impacts of inflation.
What happened in 2022?
This year proved to be a tumultuous time for many due to the rising costs of goods and services. By the end of November, the consumer price index had increased by 7.1 percent from one year ago. And that was actually the smallest twelve-month increase for 2022, giving truth to the feeling that everything seemed to cost more for most of the year. We saw rent prices peak at a 17.5 percent increase year-over-year in March, gasoline prices increase by 59.9 percent year-over-year in June, and grocery costs reach a 13.5 percent increase year-over-year in August.
To help combat the effects of inflation, the Federal Reserve raised interest rates a total of seven times throughout the year. In December, it issued a final 50-point increase with targeted rates falling between 4.25 and 4.5 percent. The goal of all these raises was to reduce the demand from buyers on goods and services, hopefully quelling a recession in 2023 or 2024.
With buying power shrinking in 2022, it ultimately became more difficult for people to purchase high-ticket items that typically require taking out a loan. Interest rates on various loans increased throughout the year because of the Fed’s rate hikes—by December 2022, credit card APRs averaged around 22.91 percent and 30-year fixed-rate mortgage rates averaged around 6.1 percent. For comparison, in November of 2021, credit card APRs were 16.44 percent and 30-year fixed-rate mortgage rates were 3.5 percent.
What’s ahead for 2023
With the increase in prices and rates this year, many are wondering what’s to come in 2023. Though it’s not possible to fully predict the future of the economy, we have seen a slow decrease in these final months of 2022, and experts seem hopeful that inflation could decline next year, bringing more reduction in the cost of goods. Though the Federal Reserve is expected to continue raising interest rates in the first months of the year, there does seem to be a light at the end of the tunnel.
Whether or not we’ll see a recession in the new year remains unknown. There is a certainty that we’ll have a period of deflation sometime in the future. Historically, all periods of inflation have been followed by deflation as the economy recovers and bounces back. After all, inflation must come to an end; otherwise buying power would become inconsequential. But what should you do in the meantime?
Make a goal to reduce your unnecessary expenses in the new year. Spend less on dining out, make coffee at home, or get rid of cable or a streaming service. Try to spend less on the things you want so you can have more money for the things you need.
Increase your savings
It’s always a good idea to have an emergency fund, so make 2023 the year of savings. Whether you’ve already got a nest egg, lost a big chuck of it this year, or have yet to build one, increase the amount you put directly into savings each month so that you can have something to fall back on if you need it.
Diversify your income
We’ve all seen, read, or experienced the effects that mass layoffs have had this year. That’s why it’s more important than ever to have multiple income streams. If you have the time and interest, start a side hustle in 2023, whether it’s selling art on Etsy, creating digital content, picking up a weekend job, or teaching music lessons. Whatever you choose to do, it’s never a bad idea to have multiple avenues through which you’re bringing in money.
Though there are many unknowns, you can make small changes to your daily lifestyle to better ensure your financial security now and into the future.