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The Real Signs of Inflation

| July 18, 2019

Real Signs of Inflation

With so much in the news recently that “inflation is dead” or the Fed “seeing no signs of inflation,” it really got me thinking – Are they crazy or just ignorant?!  Do people really think the costs of things are not going up?  So, I went through some of my personal expenses in hopes to find an answer, and better understand if there really is inflation. 

First, inflation is simply how much the price of a good or service has increased over a time period, which causes a decrease in the purchasing power of money.  For the prior 12 months ended in May 2019, the United States inflation rate has been 1.8%.  Over the last 10 years, going back to 2009, the highest inflation year was 2011 at 3% and the lowest was 2015 at 0.7%. 

Have you ever sent a text to someone and their response shows up green?  It’s the worst, isn’t it?!?  Immediately you know they aren’t an iPhone user.  Sorry dad and your Android phone.  The iPhone is a great example of “real inflation.”  Twelve years ago, the iPhone was released for a price of $499.  Today, the iPhone Xs Max is selling for $1,249.  If we do the easy math, that is a 7.946% increase over the prior 12 years.  So, if you bought the first one, and own the most recent one, your inflation rate on that product is 7.946%. 

Let’s take rent as another example.  From 2000 to 2018, rent had an average inflation rate of 3.11% per year.  In other words, if you rented a place in 2000 for $1,000 per month, in 2018 you will be paying over $1,700 per month for the same place.  Now remember, much of this will also depend on which city you live too.  Last year, my wife and I rented an apartment for $1,200 and when we went to renew, they said rent went up to $1,300.  Well that’s an 8.33% increase in just one year.  If we take the top 10 cities in metro Atlanta and look at the average rent increase across the area, that is a 3.37% increase since last year.  That’s inflation. 

Do you eat food?  You probably should if you don’t.  From May 2018 to May 2019, fruits, vegetables, meats and fish, milk, eggs, cheese, etc. and not including alcohol increased by 7.9% for the year.  If you factor in alcohol and tobacco, add 21% to your inflation rate. 

If you live in New York City, you maybe can ignore this one, however most people also drive a car.  This past year, gasoline prices are down about .2%, yet over the prior 10 years gas prices are up 5.47% on average per year.  That’s inflation. 

These are just a few examples of real inflation, and there are tons more I haven’t included – medical expenses, college costs, travel expenses, sporting and entertainment events, etc.  Unless you are the FED, there are clear signs everywhere that costs are rising, which means your dollars in the future will not go as far as they do today. 

What are you doing to prepare for higher costs down the road?  If you have higher inflation, you also have more uncertainty, and more uncertainty can have negative effects on companies' profits and their growth over time.  Markets and economies don’t like uncertainty. 

You must begin preparing ahead of time, because if you wait, it will be too late.  The first step is understanding what is real and what is in front of you today, and that everything you hear and read about in the news, just might not be totally accurate.