The Federal Reserve on Wednesday hiked interest rates by the most since 1994 in an effort to tamp down inflation that's hitting Americans on every front.
The average price at the gas pump is now over $5 a gallon, airline fares were up 12.6% from April to May, and the food index rose 10.1% year-over-year in May. Unfortunately, personal finance guru Suze Orman, co-founder of SecureSave and host of the "Women & Money" podcast, has more bad news.
Inflation is “here to stay for quite a while,” Orman told Yahoo Finance’s editor-in-chief, Andy Serwer, on Monday in a wide-ranging interview for his "Influencers" series. To mask soaring inflation, Orman suggests that companies will “shrink their packaging,” so even if consumers pay the same price for goods, they are effectively getting less in value.
“So you're paying the same price, but you're getting less in terms of what you're really paying for. Do you really think when this goes away, Andy, that they're going to make their boxes bigger again? I don't think so,” Orman says.
Inflation hit a 40-year high in May, but not every expert believes prices will keep surging. Alan Blinder, former vice chair of the Federal Reserve and a professor of economics and public affairs at Princeton University, predicted in a June 1 op-ed for The Wall Street Journal that the U.S. will not be "doomed to high inflation for years." He anticipates that supply-chain problems will soon ease and that volatile components of inflation, such as food and energy, will also settle down in the near future.
“Inflation will fall as quickly and dramatically as it rose,” Blinder wrote.
Still, this could provide little comfort to Americans whose wages aren't currently keeping up with the fast pace of inflation. In an era of higher prices, Orman advises consumers to have self-discipline and to be more frugal than they would be in a less inflationary environment.
"When corporations find that they can make a fortune off of us, which they are, look at the oil companies, then you have got to understand that it's really important that you adjust how you spend your money — and how much you spend versus how much you save," she said. "The simple answer to this is you all have to save more and spend less."
Orman also warns consumers to rein in credit card spending. Indeed, the Federal Reserve reported in May that U.S. credit card balances were $71 billion higher in the first quarter of 2022 than the same quarter the year prior.
“You’re watching credit card debt build up higher than it’s been in a long, long time,” Orman notes.
Americans already appear to be pulling back on their discretionary spending. The Commerce Department reported Wednesday that retail sales fell 0.3% in May, the first decline recorded in five months. For her part, Orman recommends cutting back on non-essential expenses as long as inflation continues to rise, even though it might be tempting to hit the town and spend money as COVID-19 eases.
“You have to just do what you need versus what you want to do," she said. "And that really is the key to getting through this."
Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22