Author: Taina Cvetko
The costs of living have seen the silent, deep and, to many, new effects of inflation characteristic of recent times that have changed the ways in which individuals and families have to manage money. People are used to identifying what inflation means — that rollercoaster of price rises, often, as we all witness at the gas station or grocery store — but the effect of inflation is not always easy to imagine. These less-visible and more recent “hidden costs” of inflation show up in sectors across the board, like housing and utilities as well as education and health care.
Impact on Basic Necessities
Inflation has driven some of the biggest increases for essentials like food, energy and transport. Food inflation has surged in the last few years, with analysts reporting upwards of double-digit inflation on staples such as meats, dairy and other grains. For example, over the period from 2019 to 2024, groceries classified as necessities have increased in cost by nearly 30%, which is particularly adverse to families in fixed income situations, since lower income families need to devote a greater percentage of their budgets to necessities than do higher income families.
Energy prices, catching global trends, peaked at a rate of inflation of 41.6% in 2022, passing the burden to nearly all branches of the economy that use energy as a production and transport input. These increases hit low-income households harder since their energy expenses represent a much larger percentage of their monthly disposable income.
Housing and Utility Costs
Since 2019, prices are more than 20% higher in some of our regions with housing now one of the biggest costs faced by many households. As a result, rents have soared—especially in cities. Homeowners are also impacted by this inflation; higher interest rates raise the cost of mortgages, which creates a particularly challenging environment for individuals who can only afford to buy or maintain homes with financing. And, of course, utility prices, which are also a need, have gone up; most notably driven by the cost of producing and delivering energy. Rising utility bills add even more pressure on household budgets, especially in parts of the country with severe weather where heating or cooling is a requirement.
Transportation and Vehicle-Related Expenses
Yet another inflation-induced stealth effect is rising transport costs. Vehicle ownership is so expensive now with rising fuel prices in recent years. The rising costs of maintaining and insuring a vehicle leave car owners in a never-ending, painful financial situation. Vehicle insurance had risen over 50% from 2019 to 2024, and inflation spikes had been seen in car repairs, too. As these costs are basic needs for people who need to drive to get to work, then higher fees directly hit disposable income and, in many cases, reduce people’s mobility.
Education and Healthcare: The Long-Term Costs
Inflation, educators and healthcare can be major household expenses that impact how families plan for the long-term and manage their finances. Rising college costs, inflation-driven tuition increases, and record-high student loan debt. Parents bend over backwards to various often excessive spending cuts to afford better education for their children.
Healthcare prices are affected also, from prescription prices to hospital care, inflation is the molecular agent of the organism that are health care costs. However, especially for older adults living on a fixed income, rising health care costs are a cruel burden. Healthcare costs are not a discretionary expense like many others, and the inherent nature of inflation in this sector yields the tough decision between the medical treatment you need and household goods you may not.
Shrinkflation and Skimpflation: Reduced Value for the Same Price
A somewhat more recently popular inflationary technique called "shrinkflation" is to decrease the quantity or size of products without changing the price. But there's a less obvious change which is actually impactful: consumers pay more often to satisfy the same need. An example is snack foods, toiletries or some other small items, which may be offered in smaller units with no accompanying price reduction.
At the same time, the value of cash is also eroded by "skimpflation", as a result of a decline in quality or level of service below what could be expected. In sectors like hospitality or any kind of customer service, this may lead to extended hold times, less personnel, or restricted access to certain items, ultimately resulting in decreased customer satisfaction.
Wages and Income Disparities
Rising inflation usually is not matched by wage growth, which means that for many households the same amount of money buys less. There is a particularly stark gap for low- and middle-income earners, who are struggling increasingly with the rising cost of necessities. Households have to adjust to stagnant wages and settle for the occasional extravagance or postpone the big-ticket items, affecting a whole host of quality of life and financial stability indicators as householders make do or wait as well as they can. For some, this translates to finding other jobs or side gigs to bridge the gap, but that often adds a whole new level of financial anxiety.
In certain sectors, wage pushes can correlate with inflation, but this dynamic is generally a passing phenomenon. Consequently, many experience a reduction in their real income over time, leaving them unable to cope with rising inflation and nullifying real salary increases.
Personal Debt: Higher Interest Rates and Reduced Flexibility
When inflation picks up, many central banks hike interest rates to stop inflation from getting out of control, which will then impact those with personal debt. With higher interest rates, paying down credit card balances, auto loans or mortgages costs more, so there is less left in monthly budgets to cover other necessities. Credit card interest rates rise, racking up monthly bills that become harder to pay down for households carrying significant credit card debt.
The rising interest rates that threaten financial flexibility—forcing many to put off home-buying, additional education, or starting a business—may also cut off the ability to invest in the kind of big-ticket expenditures that power economy-wide growth. When combined with inflation and rising interest rates, this places greater pressure on personal debt obligations, creating a feedback loop where income growth remains in the rearview and the prospect of building wealth is hampered.
Financial Planning and Future Security
The ongoing rise in inflation threatens the very value of our money. It chips away at our weak and uncertain financial future. For those hoping to retire, it poses a special problem. Retirement funds, once securely safeguarded for the goal of a future retirement, now seem less certain. Inflation erodes their purchasing power and adds more uncertainty to financial planning. The funds' real value is diminished when inflation outstrips wage growth over any given period. What's a hopeful retiree to do? Shift strategy—increase the amount being saved for retirement, invest in assets likely to retain their value, and cut spending to allow the hope for a comfortable future.
Conclusion
Inflation's almost unnoticed costs reach into every part of daily life, quietly reducing the effectiveness of our essential purchases and eating into our perceived financial stability. Inflation's effects are seen most plainly in the essential goods and services we buy. But what about the invisible costs? What if the things we buy were actually costing us more, just because we were too uninformed to see it? Some economists have begun to ask this question, and their efforts at answering it provide us with some useful insights. The first insight concerns the reason why inflation is hitting us and why its toll seems to be increasing. Overall, households can expect to weather the storm by adopting more essentialist spending habits and a recuperative investment strategy.