'We're looking at a downsized America': Kevin O'Leary warns any new house, car and lifestyle you enjoy will be significantly 'smaller' — here's what he means and how you can adjust

'Hot political potato'

In September, the U.S. consumer price index rose 3.7% from a year ago.

“People are looking at the cost of energy, protein, car loans, mortgages,” O’Leary said. “These are complicated situations because of the rate hikes that happened so quickly. But there's no question inflation is not going down — it's north of 3.5%.”

Since the U.S. central bank is committed to using monetary policy to bring inflation down to 2% over time, O’Leary believes more rate hikes could be on the way.

“The Fed may have to increase rates another 25 or 50 basis points as early as January, February. It will be a very hot political potato and it's going to become an issue because it hits you every day at the pump and hits you every day at the grocery store,” O’Leary said, adding that inflation has been “hurting presidential runs on both sides of the aisle” for decades.

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Fighting inflation

In times of rising prices, consumers might want to prioritize essential expenditures and limit discretionary spending by focusing on necessities such as food, housing and health care.

As O’Leary indicated, you may have to downsize — particularly for items that require borrowing money.

Another adjustment involves budgeting more meticulously and tracking expenses closely to identify areas where cuts can be made. For instance, if you think you are paying too much for your home or auto insurance policy, you might want to compare insurance and save up to $500 a year.

Investing in inflation-resistant assets can be another way to safeguard purchasing power. For instance, investing in real estate is a popular strategy to hedge against inflation. As the price of raw materials and labor goes up, new properties are more expensive to build, and that drives up the price of existing real estate.

Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income. Although obtaining a mortgage might entail paying high interest rates, these days, you have a variety of options to invest in real estate without buying a house.