Inflation Expectations Hit 1980s High: Steps You Can Take Now as Household Budgets Face Pressure

Lately, you might have heard friends or neighbors talking about how their dollars just don’t stretch as far as they used to. If so, you’re not alone. According to recent data from the University of Michigan, U.S. consumer sentiment has dropped to its second-lowest point since records began in 1952. At the same time, people expect prices to jump by 6.7% over the coming year — a rate we haven’t seen since the early 1980s. With worries about rising prices and job cuts, it’s a smart time to look at your own budget and make sure your finances are as protected as possible. Let’s break down what’s happening and what you can do today to keep your money working for you.

Understanding Inflation, Consumer Sentiment, and Why They Matter for You

Before we get to the nuts and bolts of what to do, let’s talk about what inflation and consumer sentiment really mean — and why they matter for your wallet. Think of inflation like a slow leak in your piggy bank: over time, the same amount of money buys you less and less at the store. When families start seeing eggs, gas, or rent jump in price from month to month, it’s a sign inflation is picking up.

Consumer sentiment is a fancy term for how hopeful or worried people are about the economy. When more folks feel uneasy, they pull back on spending. According to the latest University of Michigan survey, sentiment hit just 50.8 in April 2025 — a gloomy reading, and the lowest since 1981. At the same time, one-year inflation expectations soared to 6.7%. It’s not just a number: this kind of news makes people more cautious.

“When Americans expect higher inflation, they often adjust their spending and saving, which can actually make inflation worse,” says Joanne Hsu, director of consumer surveys at the University of Michigan.

On top of that, the Federal Reserve’s own survey shows Americans now expect prices to rise more in the short-term: one-year ahead inflation expectations reached 3.13% in February 2025, up from 3.00% in January. That might not sound like much, but a jump like that can mean the difference between affording an extra grocery trip or having to cut back.

If all this sounds stressful, you’re not alone. Nearly 60% of investors recently told JPMorgan they expect the economy to get stuck — meaning the U.S. could face ‘stagflation,’ where growth slows but inflation keeps climbing. Stagflation can pinch household budgets from both sides: it’s harder to make ends meet, and harder to get ahead.

So what can you do? The good news: history shows that families who stay calm, plan ahead, and look for ways to save are best able to weather tough economic times.

First steps for readers:

• Check your monthly spending and see where prices have crept up
• Start looking for deals, coupons, or bulk discounts on basics like groceries
• If you don’t have one, consider setting up a simple budget (there are free templates online)

Remember, these early actions can make you feel more in control even when the news feels scary.

Adjusting Your Budget: Finding Savings Without Sacrificing Too Much

Smart budgeting is your best shield against rising prices. Think of adjusting your budget like giving yourself a financial tune-up — it’s not about doing without, but about spending smarter. If you haven’t looked at your family’s expenses in a while, now’s the time.

Start by writing down your most important costs: things like rent or mortgage, food, gas, utilities, and minimum debt payments. See where the numbers have changed in the past year. Many families are shocked to see just how quickly small increases on everyday items add up each month.

“Reviewing your expenses can reveal patterns you didn’t notice — maybe you’re paying $40 a month for a subscription you barely use,” says certified financial educator Tiffany Grant. “That’s money right back in your pocket.”

Once you see where your money is going, look for easy wins first. Can you cut back a little on take-out or streaming services? Swap brand-name products for store brands? If you have debts with high interest (like credit cards), consider calling your provider to see if you qualify for a lower rate or a hardship plan.

• Tip: Just $25 or $50 saved here and there can add up to hundreds by year’s end!

If you aren’t sure where to start, try the 50/30/20 rule: spend about 50% of your take-home pay on needs (rent, food), 30% on wants (fun stuff), and 20% on savings and debt paydown. In tough times, it’s okay if those numbers don’t add up exactly. The point is to know what’s coming in, what’s going out, and to look for places where you have wiggle room.

A few next steps for stretching your budget further:

• Try meal planning to save money and avoid food waste
• Take advantage of local deals at stores or farmer’s markets
• If possible, cook at home more often to reduce dining-out costs
• Consider carpooling or public transit a few days a week if gas costs are up

Little changes done consistently can make a real difference — and you don’t need to do it all at once!

Building an Emergency Fund and Planning for What’s Next

With fears of recession and stagflation in the air, financial experts agree on one thing: An emergency fund is more important than ever. This is a savings cushion you can turn to if you lose a job, face a medical bill, or hit another money surprise. Even if you already have some savings, double-check if it’s enough to cover your needs for at least a few months.

Think of your emergency fund like the spare tire in your trunk. You hope you never have to use it, but you’ll be thankful it’s there when you do. Experts often recommend setting aside enough to cover three to six months’ worth of basic living expenses. But any amount— even a few hundred dollars — can help in a pinch.

“The secret is to start small and make saving automatic,” says John Hope Bryant, CEO of Operation HOPE. “Even $10 a week adds up over time.”

Where should you keep your emergency fund? The best spot is usually a separate savings account at your bank or credit union, where you can get to your money quickly but won’t be tempted to spend it. Look for accounts with no monthly fees and some interest, even if rates are low.

Here’s how to get started:

• Set a specific goal — maybe $500, then $1,000, and so on.
• Set up direct deposit or an automatic transfer, so you’re saving a little each payday.
• If you get a refund, bonus, or any extra income, consider putting part of it into your emergency fund first.

Don’t be discouraged if it takes time. The point is to build up your safety net little by little.

And remember: double-check your insurance coverage for health, home, and auto to make sure you aren’t under-protected. When times get tough, having the right coverage can prevent a small emergency from becoming a giant financial setback.

Final tips for staying prepared during uncertain times:

• Talk to your family about your household’s financial plan — teamwork makes saving easier
• Keep learning about money basics, and don’t hesitate to ask for help at a local credit union or nonprofit
• Celebrate your progress, no matter how small

History shows that periods of high inflation don’t last forever. By taking small steps now, you’ll be in a better position to ride out the storm and protect your family’s future.