On holiday shopping’s final day, beware of an inflation hangover

It’s the holiday season, a festive time of too much food, fun and family. But this year’s “too much” list must now include too much inflation. Over the last year, inflation has made the average good 7.1 percent more expensive. It has damaged budgets for travel, food and giving.  

How bad have things gotten and what can consumers do?

In this season of joy, let’s start with the good news — travel by car is getting cheaper. Last December, nationwide gas prices averaged $3.28 according to AAA. This year, after averaging closer to $3.61 around Thanksgiving, gas prices are now averaging $3.09 per gallon. This is extremely helpful for families set to travel during the holidays. 

While car travel has benefited from the recent drop in gas prices, air travel demand has surged — along with its prices. The travel app Hopper suggests that the average Christmas fare will be 31 percent higher than 2019 fares. As the result of renewed demand in a labor-strapped business, airfare is a luxury that many simply cannot afford this holiday season. Long road trips abound, despite the questionable weather forecast for much of the country. It makes a lot of sense for larger families where the cost of airfare compounds quickly. Additionally, last-minute cancellations and delays are often a lot cheaper to bear when you have your own transportation. 

For those staying home, inflation has seriously eaten into their food budgets (dad-joke level pun intended — it’s the holidays). The Consumer Price Index shows that food-based inflation for dinner eaten at home over the past year has been 12 percent. 

This level of inflation has a double impact during this season. First, a greater percentage of income going towards necessities like food means less money for items like travel and giving. Second, it means traditional holiday parties have gotten a lot more expensive to host. Many holiday revelers are taking it in stride, however, moving from a full dinner to an appetizer buffet, changing to a potluck from a hosted dinner, or perhaps even moving to a BYOE” — bring your own eggnog party.  

The effects of higher costs for housing, food, heating and other necessities have significantly impacted consumer ability to give gifts this season. Despite increases in the average wages, Deloitte suggests that total holiday spending per person will be roughly flat with last year — at $1,455 per person. But with consumer goods up an average of more than 7 percent those dollars won’t go as far.  Fewer or smaller gifts are likely to be under the tree. 

With planning, most consumers can blunt the effects of inflation. Retailers such as Target have stocked their shelves to the fullest this season. This has led to a series of sales that will help stretch the dollar for gifts. Online shopping comparison apps can help the consumer find the best deals. 

But the biggest gift any consumer can give themselves is a budget for this Christmas. Sit down, figure out what is affordable right now and stick to the budget. Impulse purchases, impromptu evenings out and last-minute trips are the fodder for overspending. The extra expense of the holidays usually warrants a separate December budget — one that is a bit larger than the rest of the year. But the joys of the season can lead to poor decisions. Buying items on a credit card that you cannot immediately pay off or dipping into an emergency fund to cover non-emergencies can result in a New Year’s hangover that can last for months. Plus, with the average income tax refund expected to drop this coming year — the normal post-Christmas bailout many folks rely on won’t be as great.  

The holidays are “the most wonderful time of the year.” With a little planning, a budget and smart shopping, you too can have a happy holiday and not regret it come 2023. 

Jaime Peters, Ph.D. is an assistant dean and assistant professor of Finance at Maryville University.