Personal Finance

Here’s the inflation breakdown for July 2024 — in one chart

Published

5 months ago

August 14, 2024

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Inflation continued to retreat in July, aided by easing price pressures for consumer staples like food and energy and physical goods like new and used cars.

The consumer price index, a key inflation gauge, rose 2.9% in July from a year ago, the U.S. Department of Labor reported Wednesday. That figure is down from 3% in June and the lowest reading since March 2021.

The CPI gauges how fast prices are changing across the U.S. economy. It measures everything from fruits and vegetables to haircuts, concert tickets and household appliances.

“I think it’s right down the strike zone,” Mark Zandi, chief economist of Moody’s, said of the CPI report.

Perhaps the most important thing for consumers is inflation for groceries “continues to grow very slowly,” Zandi said.

Combined with similar good news for other necessities like gasoline and market rents for new tenants, “that’s really encouraging news, particularly for the lower-income consumers that are the most hard pressed,” he added.

Inflation guides Fed interest rate policy

The July inflation reading is down significantly from the 9.1% pandemic-era peak in mid-2022, which was the highest level since 1981.

It’s also nearing policymakers’ long-term target, around 2%.

“We think we’re though the worst of it from an inflation perspective,” said Joe Seydl, senior markets economist at J.P. Morgan Private Bank.

The U.S. Federal Reserve uses inflation data to help guide its interest rate policy. It raised rates to their highest level in 23 years during the Covid-19 pandemic era, pushing up borrowing costs for consumers and businesses in a bid to tame inflation.

Recent labor market data has spooked some investors, who fear it signals a U.S. recession may be near. Many economists say those concerns are overblown, at least for now.

Nonetheless, easing inflation coupled with a cooler labor market make it likely that Fed officials will start cutting interest rates at their next policy meeting in September, economists said. Doing so would reduce borrowing costs, helping buoy the economy.

“In short, this CPI report represents more good data and adds to the evidence supporting a [0.25 percentage point] September rate cut,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note Wednesday.

Housing is a stumbling block

Housing is the one major impediment keeping inflation elevated above the Fed’s target right now — on paper, at least, economists said.

Shelter is largest component of the CPI, and therefore has an outsized effect on inflation readings.

The shelter index has risen 5.1% since July 2023, accounting for more than 70% of the annual increase in the “core” CPI, the BLS said Wednesday. (The core CPI is economists’ preferred gauge of inflation trends. It strips out food and energy costs, which can be volatile.)

Consumer prices rose 0.2% in July, in line with expectations

After declining to 0.2% in June on a monthly basis, shelter inflation jumped back to 0.4% in July, the BLS reported.

Housing inflation moves up and down at glacial speed due to how the government measures it, economists said. Such data quirks mask positive news in the real-time rental market, which has seen inflation flatline for about two years, Zandi said.

Excluding shelter — which is likely warranted given measurement issues — “we’re at the Fed’s target and then some,” Zandi said.

“Mission accomplished, in my view,” he said of the fight against inflation.

After stripping out shelter, the CPI rose 1.7% in July, below the Fed’s annual target.

Economists broadly expect shelter CPI inflation to continue to throttle back slowly given prevailing trends for market rents.

Other ‘notable’ categories

Motor vehicle insurance, medical care, personal care and recreation are some other indexes with “notable” increases over the last year, according to the BLS.

Prices in those categories are up 18.6%, 3.2%, 3.4% and 1.4%, respectively.

A surge in new and used car prices a few years ago is likely now fueling high inflation for car insurance premiums and vehicle repair, since it generally costs more to insure and repair pricier cars, economists said.

Insurance inflation should ultimately fade alongside falling car prices, they said. New vehicle prices are down 1% over the past year, and those for used cars and trucks have declined almost 11%.

Egg prices — which had surged in 2022 due to a historic outbreak of bird flu — are rising again following a reemergence of the deadly disease. They’re up 19% from a year ago.

Other food categories including bacon and crackers are up over the past year (by 8.5% and 3%, respectively), but their prices fell during the month of July, suggesting more potential declines ahead.

Overall annual grocery inflation was 1.1% in July, down from an average 11.4% in 2022, which was the highest since 1979.

How supply and demand impacted inflation

Inflation for physical goods spiked as the U.S. economy reopened in 2021. The Covid-19 pandemic disrupted supply chains, while Americans spent more on their homes and less on services such as dining out and entertainment.

It is a different story now. Goods inflation has largely normalized, while the services sector is a fly in the ointment, economists said.

However, services inflation — generally more sensitive to labor costs — should ease further due to a slacker job market and declining wage growth, economists said.

High interest rates have also served to reduce overall inflation by reducing demand, Seydl said.

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Personal Finance

Nearly half of credit card users are carrying debt, report finds

Published

2 hours ago

January 8, 2025

Business Finance News

Consumers still face inflation challenges despite having spending power: TD Cowen's Oliver Chen

Many Americans are starting 2025 a little worse off than before, at least when it comes to credit card debt.

Almost half of cardholders — 48% — now carry debt from month to month, according to a new report by Bankrate. That’s up from 44% at the start of 2024. Of those carrying balances, 53% have been in debt for at least a year.

Roughly 47% of borrowers said they carry a balance due to an unexpected or emergency expense, most commonly medical bills or car and home repairs. Others cite higher day-to-day expenses and general overspending.

“High inflation and high interest rates have been a nasty combination, and while the worst is behind us, the cumulative effects are significant and will linger,” Ted Rossman, Bankrate’s senior industry analyst, said in a statement.

Overall, Americans’ credit card tab has continually crept higher.

The average balance per consumer now stands at $6,380, up 4.8% year over year, according to the latest credit industry insights report from TransUnion from 2024’s third quarter.

By way of example: With annual percentage rates just over 20%, if you made minimum payments toward the average credit card balance ($6,380), it would take you more than 18 years to pay off the debt and cost you more than $9,344 in interest over that time period, Rossman calculated.

Meanwhile, 36% of consumers added to their debt load over the holiday season, according to a separate report by LendingTree.

Of those with debt, 21% expect it’ll take five months or longer to pay it off, LendingTree found.

According to another report by WalletHub, 24% of Americans said they will need more than six months to pay off their holiday shopping debt. In that survey, most consumers said inflation caused them to spend more than they initially planned.

“Many people need months to repay holiday bills after overspending,” said John Kiernan, editor at WalletHub.

The best way to pay down debt

The best move for those struggling to pay down credit card debt is to consolidate with a 0% balance transfer card, Bankrate’s Rossman said.

“You could pay about $300 per month and knock out the average credit card balance in 21 months without owing any interest,” he said.

As it stands, 30% of credit cardholders expect to pay off their credit card debt within a year, while 41% expect to pay it off in 1 to 5 years, Bankrate also found. Another 13% expect it will take more than a decade.

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Personal Finance

Crypto options in 401(k) plans. Here’s what you need to know

Published

3 hours ago

January 8, 2025

Business Finance News

The rally in bitcoin and other cryptocurrency prices has generated excitement among some investors, but investment advisors are largely still skeptical that those volatile assets belong in a 401(k) plan or other qualified retirement savings plans.

Crypto was one of the fastest-growing categories of exchange-traded funds in 2024. The most popular of these funds, the iShares Bitcoin Trust ETF (IBIT), has ballooned to over $50 billion in total assets.

Although crypto is a small part of the 401(k) plan market, it could grow substantially in 2025.

President-elect Donald Trump has suggested he will create a strategic reserve of bitcoin for the U.S. and has nominated Paul Atkins, a cryptocurrency advocate, to chair the Securities and Exchange Commission. The SEC’s approval of spot bitcoin and ethereum exchange-traded funds in 2024 was a key change for the industry.

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Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

The law covering 401(k) plans requires plan sponsors to act as fiduciaries, or in investors’ best interest, by considering the risk of loss and potential gains of investments. The Labor Department has cautioned fiduciaries to exercise “extreme care” before adding crypto options to a 401(k) plan’s core investments.

Labor Department officials, however, haven’t required fiduciaries to select and monitor all investment options, like those offered through self-directed brokerage windows, according to the Government Accountability Office. Nearly 40% of plans now offer brokerage windows in their 401(k) accounts, according to a 2023 survey by the Plan Sponsor Council of America.

Pros and cons of crypto in a 401(k) plan

Fernando Gutierrez-Juarez | Picture Alliance | Getty Images

Views are mixed about how much crypto to add to retirement savings or if it’s wise to allocate any at all.

Some financial advisors say crypto can work for a 401(k) plan because its movements are unconnected to the stock market and it functions even if a fiat currency is devalued.

“Crypto should be a part of a 401(k) plan because it’s a non-correlated alternative asset class,” said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.

“With that said, investors need to ensure that they take their risk tolerance and time horizon into account which will define the target allocation,” said Johnson, who is also a member of the CNBC Financial Advisor Council. “The more volatile an asset class is, the less you need of it in the portfolio because you presumably get more bang for your buck.”

Johnson recommends cryptocurrencies range from 2% to 8% of an investor’s portfolio.

Other experts point to volatility and risk as reasons to be conservative.

“People saving for retirement should probably be even more conservative, because adding crypto to a 401(k) plan would significantly increase the risk that your retirement nest egg could suffer a large loss at the wrong time,” said Amy Arnott, a chartered financial analyst and portfolio strategist with Morningstar Research Services.

Morningstar found that since September 2015, bitcoin has been nearly five times as volatile as U.S. stocks, and ether nearly 10 times as volatile. That type of volatility adds a large risk to a portfolio even with a small amount invested.

401(k) contribution limits for 2025

Regardless of what assets are in a 401(k) plan, there are limits to how much you can contribute. For 2025, an employee can contribute up to $23,500 in a 401(k) and other employer-sponsored plans — that’s $500 more than in 2024.

People age 50 or older can make a “catch-up contribution” of up to $7,500. And those age 60 to 63 years old can supersize that, with a catch-up contribution of up to $11,250 for 2025.

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Personal Finance

Why your paycheck is slightly bigger

Published

21 hours ago

January 7, 2025

Business Finance News

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Why your take-home pay could be higher

If you’re starting 2025 with similar wages to 2024, your take-home pay — or compensation after taxes and benefit deductions — could be a little higher, depending on your withholdings, according to Long.

“When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder,” he said.

The federal income tax brackets show how much you owe on each part of your “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

“Even if you make a little more than last year, you could actually pay less in tax in 2025 compared to 2024,” because the standard deduction also increased, Long said.

For 2025, the standard deduction increases to $30,000 for married couples filing jointly, up from $29,200 in 2024. The tax break is also larger for single filers, who can claim $15,000 in 2025, a bump from $14,600.

‘It ends up nearly balancing out’

Despite tax bracket changes, many Americans won’t feel the pay increase amid elevated prices for certain expenses, said Sheneya Wilson, a CPA and founder of Fola Financial in New York.

“It ends up nearly balancing out,” she said.

While inflation is no longer accelerating, there was an uptick in the cost of groceries, gasoline and new cars in November, according to the Bureau of Labor Statistics.