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Inflation dips to 8.5% but food prices jump — what it means for you

dollar bill disappearing due to inflation
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The Consumer Price Index (CPI), which serves as a measure of inflation, indicated that inflation rose 8.5% in July from a year ago. 

In the lead-up to the U.S. Bureau of Labor Statistics (opens in new tab) release of this data, some feared that consumer prices would soar past the 40-year high reached in June. 

But even with the lower-than-expected CPI figure — which dropped from 9.1% in June — providing a modicum of hope, consumers still feel the pinch of higher prices across the country. 

What’s pinching wallets across the country?

Even though inflation has eased off of its 40-year high, there is still tremendous pressure on consumers' budgets. With the CPI up to 8.5%, people across the country are feeling the pinch.

Of course, inflation impacts everyone's costs a little bit differently. For example, those with limited gasoline needs or the option to supplement their food supplies will likely feel less of a pinch.

But regardless of your needs, you are likely facing higher prices in some areas of your budget.

Here's a closer look at what consumers are facing.

Rising food costs

Food costs continued to rise. In the last month alone, food costs rose 1.1%. Since last year, food costs have increased by a staggering 10.9% (opens in new tab).

Grocery shoppers around the country are struggling to stretch their dollars farther, with food costs at home up 13.1% in the last year. Dairy and related products are up 14.9% for the year, while fruits and vegetables are also up to 9.3%.

Food costs outside the home have also risen in the last year by 7.6%, with full-service meals and snacks up 8.9%.

Energy costs drop

The overall drop in the CPI is attributed to falling energy prices, which fell for a combined total of 4.6%. (opens in new tab) That’s a significant relief for most consumers.

Gasoline prices, a critical part of household budgets, fell by 7.7% since last month. However, the price of gasoline is still up 44% from a year ago, which means pain at the pump is still a reality for many, but there are always ways you can save on gas (opens in new tab).

Fuel oil costs also fell by 11% monthly. But the costs are still dramatically higher than last year, with an annual increase of 75.6%.

Although the price to fill your gas tank might be less of a burden this month, soaring energy services prices might eat up those potential savings. Electricity costs are up 1.6% for the month and a whopping 15.2% higher than last year.

If you rely on piped gas services, those costs have risen by 30.5% in the last year. But in the previous month, prices have fallen by 3.9% (opens in new tab).

Other necessities

When food and energy prices are stripped away to find the ‘core CPI,’ consumer costs rose 5.9% in the last year. Since food and energy prices are deemed more volatile, this core gives more insight into the pressure consumers feel in their baseline budget.

If you are in the market for a vehicle, you’ll still find inflation everywhere you shop. New vehicle prices are up 10.4% over last year. But there is some positive news for used car and truck prices, which dropped 0.4% last month, even though prices are still up 6.6% annually.

Other modes of travel are also seeing a shred of positive news. Although transportation services are up 9.2% for the year, there’s been a 0.5% drop in prices in the last month.

But shelter prices are still on the rise. Shelter costs rose by 0.5% for the month and 5.7% for the year. Since shelter costs account for approximately a third of the CPI weighting, this rising cost category is something to keep an eye on.

Risks on the horizon

The most recent CPI numbers are a positive sign. After all, a fall of any kind is better than a relentless march towards higher inflation.

However, an 8.5% CPI index is hardly a cause for celebration because the cost of living is still significantly higher than last year.

Dan Varroney, CEO of Potomac Core Association Consulting and auto of Reimagining Industry Growth, says, “Undoubtedly, the storm clouds are visible, and U.S. consumers are already feeling the pain wherever they go.”

Even though a U.S. Bureau of Labor Statistics report (opens in new tab) found that the median weekly earnings have increased by 5.2% for the year, inflation makes it challenging for many families to keep up with the costs. 

Varroney says, “The cost of living is increasing at a pace not seen in forty years. Higher prices, rents, food, and gasoline prices are taking a toll. Families are modifying their purchasing decisions and that will definitely reflect in the third and fourth quarter GDP numbers.”

And it’s clear that Americans felt the hit of sky-high prices on their wallets this summer.

In June, Personal Capital and Empower surveyed how consumers were coping with higher costs. While 85% of U.S. consumers were worried about rising inflation, 69% think their income isn’t keeping up with the rising costs.

Perhaps most shocking, the survey found that 56% of Americans feel that their standard of living is declining. If prices continue to rise, the survey indicates consumers plan to cut back on entertainment, food, travel, gas, convenience services, and wellness items.

But as summer comes to a close, inflation expectations are falling, according to a survey conducted by the Federal Reserve Bank of New York. In July, consumers reported an inflation expectation of 6.2%, which is slightly better than the previous 6.8%.

How can you protect yourself from the effects of inflation?

Regardless of expectations, it’s undeniable that inflation is taking a major toll on consumers.

As the Federal Reserve continues to take steps to tame inflation, households can take action to manage the impact on their own finances.

A few strategies to minimize the impact of inflation on your budget include:

  • Paying off credit card balances before interest rates climb and keeping track of your rewards to get the most out of your credit cards
  • Shopping with discounts in mind
  • Putting off big purchases
  • Making sure your salary stays competitive.

For another way to deal with rising food prices, check out how to shop with grocery coupons for beginners.

Sarah Sharkey
Personal finance writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. She covers personal finance topics ranging from insurance and banking to mortgages and credit cards. Her real hope is that readers find valuable takeaways to improve their own financial situation in her work. You can find her writing on Business Insider, Money Under 30, Rocket Mortgage, Bankrate, and more. She lives in Florida with her husband and dogs. When she's not writing, she's outside exploring a new stretch of coastline. Connect with her on her blog Adventurous Adulting. (opens in new tab)