Most of us face a year of tighter budgets.

Key points

• Inflation hit 7.5% over the previous 12 months, a 40-year high. This will cost the average household an additional $3,300 per year for basic necessities.
• With gas prices hitting historic highs, Americans can expect to pay $800 more per year to drive.

Soaring inflation and gas prices are hurting Americans. Many households, especially those with low to moderate incomes, will feel the effects. Americans can expect to pay nearly $4,100 more per year, or $340 per month, due to rapidly rising costs.

Inflation is rising

Inflation hit 7.5% from 12 months ago, a 40-year high. (Compared to just 2.1% inflation from 2018 to 2019.) As a result, Moody’s Analytics estimates that inflation will cost the average American household about $3,300 more per year. This additional cost increase includes basic goods and services such as food, utilities and housing.

The gas rises

On top of that, gasoline prices hit a record high, hitting $4.33 a gallon earlier in March. A year ago, the average price for a gallon was $2.87.

The U.S. Department of Transportation’s Federal Highway Administration (DOT) says the average person drove about 1,200 miles per month in 2019. The average car mileage is around 24 mpg, which means most of American drivers use nearly 600 gallons of gasoline per year. A year ago it would have been about $1,700 per year. With rising gas prices, at that same number of kilometres, the cost jumps to about $2,500.

Add it all up and the average American will pay about $4,100 more this year than last. This works out to around $340 per month.

What options do you have?

Unfortunately, prices are expected to remain high. The extra pinch can strain your budget, so it’s important to track your money. Use a budgeting app to help you understand your spending habits, track spending, and see where you can cut. There may even be certain categories that you can eliminate.

As for driving, the Department of Energy recommends avoiding aggressive driving – rapid acceleration and braking can cut your gas mileage by 15-30%. Gas mileage also decreases when driving over 50 miles per hour. Every 5 mph you drive over 50 mph translates to an additional $0.30 per gallon of gas spent (at $4.32 per gallon).

Also look into credit cards that offer cash back on gas purchases. Many gas station chains offer loyalty programs. These rewards and loyalty programs can help offset the dramatic spike in gas prices. By paying more attention to your spending habits and driving more efficiently, you can better cope with price increases.