How to Counteract the Impact of Inflation

Inflation is still pushing prices higher, although the pace has slowed compared to last year. In July 2025, the Consumer Price Index rose 2.7% over the past 12 months, down from 2.9% in July 2024. Food prices rose 3.1% in the 12 months to July 2025, including a 2.4% increase for food at home and 4.1% for food away from home. The shelter index climbed 3.7%, while transportation services increased 3.4% over the same period.

Even with smaller increases than we saw, the rising cost of essentials continues to put pressure on household budgets. Additionally, Core CPI (all items less food and energy) was 3.1% YoY in July 2025.”

In this article, we explore practical ways to counteract inflation, allowing you to stretch your money further and protect your financial well-being.^[1]

Key points

• Inflation is the rate at which prices for goods and services rise over time, and if incomes do not keep pace, purchasing power may decline and affect your standard of living.
• Preparing for inflation can involve reevaluating your budget, prioritizing essential expenses, monitoring price increases in key spending categories, and establishing an emergency fund that can cover expenses.
• Counteracting inflation can involve using high-yield savings accounts, investing to potentially outpace rising prices, and prioritizing repayment of high-interest debt, such as credit cards.

What is inflation and how does it affect your money?

Inflation is the rate at which prices for goods and services rise over time. It reflects how much more expensive everyday essentials and services become year after year, typically measured using indicators such as the Consumer Price Index (CPI).

Inflation can erode purchasing power if household income fails to keep pace with rising prices. In this case, the amount of goods and services you can afford may fall, which can reduce real (inflation-adjusted) income and impact your standard of living. When real incomes increase, living standards tend to rise; when they grow more slowly than prices, purchasing power may decline.

Its effects can also vary between groups. For example, pensioners with fixed annual increases may see their purchasing power erode if inflation exceeds their raise.^[2]

6 ways to prepare for inflation

We outline six strategies to help you prepare for periods of inflation and rising living costs, as well as ways to counteract their impact. From monitoring your spending and adjusting your budget to using high-yield savings accounts, these steps may help you manage your finances more effectively.

Read on to learn how to prepare for and respond to inflation.

1. Track and rework your budget

Tracking your budget is a useful first step when prices are rising, even though it may not completely offset the impact of inflation.

Start by tracking where your money is going and identifying non-essential expenses that can be reduced. Look out for autopay expenses that you no longer use or could cut back on, such as a streaming service, that could be cancelled.

While this is primarily a short-term adjustment, it can free up cash flow and create the foundation for a longer-term financial strategy, and could bring your attention to potential rising prices in specific categories.^[3]

2. Identify which categories have risen

Knowing which expenses have been most affected by inflation can help you focus your efforts where they matter most.

Prices for essentials such as groceries, fuel, utilities, and housing have all seen increases in recent years.^[1]

Reviewing your spending in these categories can help you identify where costs are rising the fastest, allowing you to look for ways to save or reallocate your budget accordingly. By pinpointing the most affected categories, you can take targeted action. This could include carpooling or cutting drive time to save on gas.^[4]

3. Protect savings from inflation with interest

Inflation reduces the purchasing power of your money, meaning the same balance in your account may buy less over time.

One way to help offset this effect is to keep your money in a high-yield savings account, where the interest rate is higher than that of a standard account. However, these accounts may require a minimum balance and limit free monthly transactions. If you have sufficient funds, compare accounts to find one that suits your needs and ideally offers a rate that at least keeps pace with inflation.

This can help your savings grow faster and narrow the gap between your returns and the inflation rate. For long-term goals, investments such as stocks or bonds may offer higher potential returns, but they also carry more risk. Understanding how inflation affects savings can help you choose options that better preserve the value of your money.^[5]

4. Prioritize paying down high-interest debt

When inflation is high, interest rates often rise as part of efforts to slow consumer spending. Higher rates make borrowing more expensive and can increase the cost of debt you already have. Credit cards are usually the most affected by rising inflation because they typically have variable interest rates, meaning that as rates increase, carrying a balance becomes more expensive. Paying off credit card balances in full each month, or making extra payments when possible, can help you avoid added interest charges.

Not all debt needs to be paid off quickly. Fixed-rate loans, such as most mortgages, are not affected by rate hikes and may even carry an interest rate lower than inflation. The priority should be variable-rate debt, including credit cards, where interest costs can rise quickly. Making payments above the minimum helps reduce the principal faster and lowers the total interest you’ll pay.^[3]

5. Build an emergency fund

Rising prices may mean that you need a larger emergency fund than before. As expenses increase, so does the amount of financial cushion required to cover unexpected costs or manage expenses between jobs. Setting a higher savings goal and contributing extra when possible can help you stay prepared.^[4]

An emergency fund can also be part of your overall preparation for inflation, helping you maintain stability and cover essential costs without disrupting your long-term financial plans.
However, savings alone may not fully offset inflation if returns are lower than the rate at which prices are rising. Balancing your emergency fund with investments that have the potential to grow over time may help preserve purchasing power while keeping cash available for urgent needs.^[5]

6. Invest to help offset inflation

Investing can offer the potential to earn returns that outpace inflation, helping preserve and grow your purchasing power over time. While investments such as stocks, bonds, or mutual funds carry more risk than keeping money in a savings account, they may also offer higher long-term growth.

A diversified investment approach can help balance risk and reward, allowing you to pursue gains that better keep up with rising prices while spreading exposure across different types of assets.^[5]

Frequently asked questions

What causes inflation?

Economists often debate the main cause of inflation, as it can be driven by different forces. The most widely recognised types include demand-pull inflation, cost-push inflation, built-in inflation, and supply-side factors.

• Demand-pull inflation occurs when overall demand for goods and services grows faster than the economy’s capacity to produce them.
• Cost-push inflation occurs when production costs, such as wages or raw materials, increase, and businesses pass these costs on to consumers through higher prices.
• Supply disruptions include events such as natural disasters, geopolitical tensions, or changes in policy that can limit the availability of goods and services, which can lead to higher prices.
  Source: ^[6]

How much emergency fund do you need during inflation?

Financial experts are now recommending a larger safety net than the traditional three to six months of expenses. With rising prices and a more uncertain economic outlook, some suggest aiming for up to three to six months’ worth of essential living costs in an easily accessible account.

A larger emergency fund can give you more flexibility to manage higher costs for necessities like housing, food, and transportation without turning to high-interest debt. The exact amount you need will depend on factors such as your job stability, monthly obligations, and whether you have dependents.

Keeping these funds in a high-yield savings account can also help your balance grow while maintaining quick access when needed, though these accounts often require a higher minimum balance and may limit monthly withdrawals.

Sources

1. Bureau of Labor Statistics. “Consumer Price Index – July 2025,” https://www.bls.gov/news.release/cpi.htm.
2. International Monetary Fund. “Back to Basics: What Is Inflation?” https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation.
3. United Nations Federal Credit Union. “Protect Your Money During High Inflation,” https://www.unfcu.org/financial-wellness/protect-your-money-during-high-inflation/.
4. Fulton Bank. “Ease the Impact of Inflation,” https://www.fultonbank.com/Education-Center/Trending/Ease-the-impact-of-inflation.
5. PNC Bank. “How Does Inflation Affect Savings?” https://www.pnc.com/insights/personal-finance/save/how-does-inflation-affect-savings.html.
6. PIMCO. “Understanding Inflation,” https://www.pimco.com/us/en/resources/education/understanding-inflation.

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.

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