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Who Says No Inflation?
Old 04-06-2009, 07:41 AM   #1
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Who Says No Inflation?

While claims of no inflation abound - my budget sheet says otherwise.
This year:
HOA increase
Car insurance increase
Home owner insurance increase
All of my utilities have had a recent increase

Add to this the price of fuel is going up - my grocery bill is increasing and they just raised the tolls on the turnpikes.

The best part is that most of these increases are blamed on the sagging economy.

But I bet my TIPS won't increase due to the sagging economy.

End of rant.
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Old 04-06-2009, 07:46 AM   #2
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Golf dues went up.
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Old 04-06-2009, 09:41 AM   #3
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Im spending less than last year in most categories. I did notice my utilities have went up about 9.00 more than over the same 3 month period as last year.

Could be Ive gotten a bit more frugal.
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Old 04-06-2009, 09:47 AM   #4
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Originally Posted by Notmuchlonger View Post
Im spending less than last year in most categories. I did notice my utilities have went up about 9.00 more than over the same 3 month period as last year.

Could be Ive gotten a bit more frugal.
That's exactly what's wrong with the CPI and its use of "substitution."

Comparing apples to apples, prices are rising. But people are substituting cheaper "oranges" (this is metaphoric, not specifically the real fruits) in tough times, and as a result their food bill goes down even though the price of apples may be up 5-10%. The CPI's "substitution" algorithm considers this and pretends food prices are flat or even falling. It's a joke, really -- it should be tracking a fixed standard of living, not a downward-adjusted standard of living.
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Old 04-06-2009, 09:58 AM   #5
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Originally Posted by Mysto View Post
While claims of no inflation abound - my budget sheet says otherwise.
This year:
HOA increase
Car insurance increase
Home owner insurance increase
All of my utilities have had a recent increase

Add to this the price of fuel is going up - my grocery bill is increasing and they just raised the tolls on the turnpikes.

The best part is that most of these increases are blamed on the sagging economy.

But I bet my TIPS won't increase due to the sagging economy.

End of rant.
According to the BLS, all the major categories are getting more expensive, except "Transportation". Of course, the big drop is in gasoline (they have it down 35% from Feb 08 to Feb 09), but they also have a drop in both new and used cars.

So your experience differs from theirs only if your "fuel" means gasoline.

Table 1. Consumer Price Index for All Urban Consumers (CPI-U): U. S. City Average, by expenditure category and commodity and service group
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Old 04-06-2009, 10:18 AM   #6
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Golf dues went up.
So did mine. As we have argued about discussed many times on this forum, the cost of "living well" seems to outpace the CPI.
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Old 04-06-2009, 10:32 AM   #7
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So did mine. As we have argued about discussed many times on this forum, the cost of "living well" seems to outpace the CPI.
I'd go farther than that. It feels to me that the cost of a fixed standard of living is rising faster than the CPI. It's largely because of "substitution" that the CPI comes in so low, which says little other than that the cost of a slightly lower standard of living is roughly flat.

In reality, if you think about it, the best outcome for the federal government (considering its debt and inflation-indexed costs) is high inflation that somehow avoids hitting the CPI. And I think increasingly, people will suspect that's what is being engineered.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
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Old 04-06-2009, 10:36 AM   #8
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.... But people are substituting cheaper "oranges" (this is metaphoric, not specifically the real fruits) in tough times, and as a result their food bill goes down even though the price of apples may be up 5-10%....
I'm kidding here, Ziggy, but in a way this is one reason it is so dangerous for the huge numbers of baby boomers to retire; I mean it could be deflationary. Retired seven months now, I may make a hobby of finding cheaper produce; literally, oranges are still 20 cents a pound in some stores in Chinatown. At first I thought it was an over-supply due to Chinese New Year, but we'll see. While working, I didn't have time to shop there, I was paying well over $1 each. I can put together a big bag of assorted veggies at .69/lb, stuff that would vary in (much higher) price at my usual shopping joints. This new hobby has nothing to do with the idea of tough times, it is about having more time.

Another thing I've noticed, the clerks at the Chinatown shops seem to really want my business now, maybe because I shop at slow times of the day. They point out where the best bargains are, they pop grapes into my month, tell me stories. On top of that the clerks at the expensive organic shops also have all the time in the world to chat me up; that surprised me and I do think it is because of hard times.
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Old 04-06-2009, 10:43 AM   #9
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In reality, if you think about it, the best outcome for the federal government (considering its debt and inflation-indexed costs) is high inflation that somehow avoids hitting the CPI. And I think increasingly, people will suspect that's what is being engineered.
Along those lines, I've begun to wonder if all this potential reflation by the government is merely an attempt to drive house prices back up, which would pretty much eliminate the banking crisis. After all, it is the reduction in the value of the collateral supporting the mortgages which has been responsible for most of the banks' problems.
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Old 04-06-2009, 10:50 AM   #10
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If you have Vanguard run their version of Firecalc, they presume that Social Security will increase at only 50% of actual inflation. Whether that's because they think the CPI numbers are slanted, or there will be an official reduction of benefits or increase in SS taxes, I didn't ask.
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Old 04-06-2009, 10:56 AM   #11
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Along those lines, I've begun to wonder if all this potential reflation by the government is merely an attempt to drive house prices back up, which would pretty much eliminate the banking crisis. After all, it is the reduction in the value of the collateral supporting the mortgages which has been responsible for most of the banks' problems.
Makes sense to me - inflation makes the $400k houses that are worth $200k suddenly worth $400k again, albeit in dollars that are worth $0.50 in old bucks.
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Old 04-06-2009, 11:22 AM   #12
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Inflation is a very "personal" metric. My healthcare and education costs are tiny, and usually the largest sources of inflation in my budget are food and energy. My grocery costs are down 35% compared to a year ago, gas costs are down 62% and utility costs are down 29%. Overall, my fixed costs are down 25% YTD compared to the same period last year, yet I seemingly haven't made any changes to my lifestyle. Certainly the drop in fixed costs is not entirely attributable to deflationary forces. Warmer temperatures this year may have contributed to lower utility costs for example. And I haven't traded down either. I am still filling up with the same grade of gasoline, still eating what I want to eat, still shopping at my upscalish grocery store, still buying the brands I trust, etc...
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Old 04-06-2009, 11:48 AM   #13
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Inflation is a very "personal" metric. My healthcare and education costs are tiny, and usually the largest sources of inflation in my budget are food and energy. My grocery costs are down 35% compared to a year ago, gas costs are down 62% and utility costs are down 29%. Overall, my fixed costs are down 25% YTD compared to the same period last year, yet I seemingly haven't made any changes to my lifestyle. Certainly the drop in fixed costs is not entirely attributable to deflationary forces. Warmer temperatures this year may have contributed to lower utility costs for example. And I haven't traded down either. I am still filling up with the same grade of gasoline, still eating what I want to eat, still shopping at my upscalish grocery store, still buying the brands I trust, etc...
Yep. Our fuel costs are down huge percentage wise. But since we only spend about 1200 a year in fuel. Not a big actual dollar amount savings
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Old 04-06-2009, 12:03 PM   #14
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Yep. Our fuel costs are down huge percentage wise. But since we only spend about 1200 a year in fuel. Not a big actual dollar amount savings
Same here. Gas prices don't affect my personal budget much at all. (In 2008, I spent a total of $483 on gas, and that included evacuating to Missouri for Hurricane Gustav.) But my grocery prices, utilities, insurance, medical expenses, and taxes continue to rise.
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Old 04-06-2009, 12:08 PM   #15
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Do we have a case of selective observation on inflation?

Do we remember that (some) food and utilities have gone up, but then forget that autos, electronics, housing, travel, and so on have gone the other way ?
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Old 04-06-2009, 12:11 PM   #16
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Yep. Our fuel costs are down huge percentage wise. But since we only spend about 1200 a year in fuel. Not a big actual dollar amount savings
Interesting, you all are giving me insight into the possibility that I really do live cheaply in an "expensive place." Basic transit: $120; utilities (gas and electric): $360 (very mild winter this year); no car, so no gas expense; don't have the travel bug at the moment so no expenses there; and then there is the natural reduction in expenses that came with retirement: I'm truly surprised I eat out much less often than planned; spend less by spending more time shopping for food and cooking; don't need any new clothes or tech stuff or anything, have more time to do the laundry....
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Old 04-06-2009, 12:23 PM   #17
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Yep. Our fuel costs are down huge percentage wise. But since we only spend about 1200 a year in fuel. Not a big actual dollar amount savings
So far this year, we've saved $790 on groceries, $300 on gas, and $409 on utilities for a total of almost $1,500... It's starting to add up.
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Old 04-06-2009, 12:46 PM   #18
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Originally Posted by ziggy29
That's exactly what's wrong with the CPI and its use of "substitution."

Comparing apples to apples, prices are rising. But people are substituting cheaper "oranges" (this is metaphoric, not specifically the real fruits) in tough times, and as a result their food bill goes down even though the price of apples may be up 5-10%. The CPI's "substitution" algorithm considers this and pretends food prices are flat or even falling. It's a joke, really -- it should be tracking a fixed standard of living, not a downward-adjusted standard of living.
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I'd go farther than that. It feels to me that the cost of a fixed standard of living is rising faster than the CPI. It's largely because of "substitution" that the CPI comes in so low, which says little other than that the cost of a slightly lower standard of living is roughly flat.

In reality, if you think about it, the best outcome for the federal government (considering its debt and inflation-indexed costs) is high inflation that somehow avoids hitting the CPI. And I think increasingly, people will suspect that's what is being engineered.




It's fairly straightforward when it's fruits and groceries and no argument there. But how do you account for items where the functionality or some other aspect has changed signficantly, especially true of many big ticket items?
  • A car today has a lot more features than a car of 20-30 years ago, it's really not "apples to apples" at all.
  • The average home today is something like 50% larger than decades ago, along with many new conveniences. Again, not "oranges to oranges."
  • It's not representative to simply look at the average price of a car or home today vs the average decades ago without making allowances for features, size etc. is it?
  • Even tougher, PC's are far more powerful than ever before, yet cheaper - how do we account for that?
  • And for that matter, decades ago no one even had a PC or internet connectivity, or a cell phone, or cable TV, or an X-Box/Wii/PS - and on and on. Do we just add those to the CPI basket knowing it will inflate cost of living - knowing it's not apples to (formerly no) apples?
I respect your views and I'm not saying your fruit example is wrong, but it's a very complex question with no obvious right answer - ultimately subject to some judgement and therefore debate. I use CPI-U in my business, and from following it for years it seems reasonably representative to me, and I know perfect is not possible. My 2...
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Old 04-06-2009, 01:11 PM   #19
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So far this year, we've saved $790 on groceries, $300 on gas, and $409 on utilities for a total of almost $1,500... It's starting to add up.
Thats great. We are doing better than last year but that not much better.
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Old 04-06-2009, 02:20 PM   #20
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The most blatant increase I've seen is groceries at what used to be my usual medium size store. I've been able to do some smart shopping elsewhere to keep my food bill fairly level. Our diet has changed a lot as a result. Fresh veggies and fruit prices have been ever more ridiculous than the usual winter-time markup prices for the Northeast.
Gas is down to $2.10 per gallon for regular unleaded. However, summer is around the corner and I expect to see it go up.
Most other household expenses have had small increases.
I expect my Waterloo to be property taxes in the near future. I'm off the hook until October. Expect a rant.
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