Are You Ready for More Inflation?

Are you ready for life to get more expensive? The January 2025 CPI report indicated inflation has ticked up. The year-over-year CPI is at 3%. That’s exactly what I chose when I took the consumer expectations survey last year. 3% inflation is not good because the Fed has been trying to reduce inflation to 2% for several years. Investors expected the Fed to reduce interest rates soon, but they probably will wait until inflation is a little lower. Usually, lowering interest rates will increase inflation. Anyway, this means the mortgage rates will continue to hold steady at around 7%. Aspiring homeowners will have to pay more for housing. Although, I don’t think 7% is too bad. The mortgage on our first home was over 8% in 1999. You just refinanced when the rates drop.

Other facets of life will also get more expensive in the coming years. President Trump is moving ahead with his tariffs. He imposed 25% tariffs on steel and 10% additional tariffs on everything from China. Get ready to pay more for cars, appliances, construction, toys, and everything we buy.

Trump also signed an executive order to impose 25% tariffs on imports from Canada and Mexico, but that has been delayed until March. Those neighbors are our biggest trading partners. The United States imports energy, vehicles, machinery, and a lot of food from them. Higher grocery prices are inevitable with 25% additional costs. Importers pay the tariffs and they will pass most of it onto consumers. I think inflation will increase to at least 5% in 2025. Some people say the tariffs on Canada and Mexico are just a tactic to get them to increase immigration and drug enforcement, but I doubt it. Trump is in love with tariffs and he’ll push ahead with them. Did you know our neighbors hate us now? How would you feel if your next-door neighbor kept threatening you?

At the RB40 household

Many US voters chose Trump because they think he’ll make life more affordable. They want things to cost the same as it was before the pandemic. However, those days are long gone. Even if inflation decreases to 0%, everything is already more expensive than in 2020. Low inflation doesn’t mean prices will go down. Most consumers don’t understand that. There is no going back to the good old days. Instead, tariffs will increase inflation and life will get even more expensive.

I don’t know what more we can do to combat high inflation at the RB40 household. We already live modestly. We buy store brands, cook at home, and share one car. Fortunately, our investment also gained tremendously over the last few years. Even with the higher prices, we still feel pretty wealthy. Anyway, here is how I’ll fight inflation over the next few years.

• Buy big items now before price the increases further. I already got a new washer and dryer last year. This year, I want to remodel our kitchen and bathroom. I’ll try to get that done ASAP, but it might be too late. The price has probably already gone up on those.
• Delay really big purchases for 4 years. Maybe things will improve once the voters see how tariffs impact inflation and the economy. I’ll keep our old car for at least 4 more years. It’s still working pretty well.
• Keep living a modest lifestyle. We’ll travel around the US instead of going abroad. The National Park Service fired hundreds of workers, but I hope camping will be okay. We’ll see how it goes. Maybe we’ll go to state parks instead.
• Keep investing. Trump and Elon Musk will do their best to enrich wealthy people over the next 4 years. We need to keep investing and try to catch a piece of it. This is the only way to stay ahead of inflation. The stock market will beat inflation in the long run. We’ll have to hang on tight to the roller coaster ride if consumer confidence continues to decline.

That’s about all we can do at this point. US consumers voted for Trump because they think he’ll help make life more affordable. I don’t see how that can happen with rising prices and plenty of job losses. I hope he proves me wrong.

What do you think about the tariffs? Will they bring back high inflation? What will you do to combat inflation?

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

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