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Old 07-09-2007, 02:02 PM   #21
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According to the stats I've seen, wage earners have been losing ground the last 5-6 years. Generally in historic terms, wage increases have been a good bit higher than most inflation index adjustments. The latent squeeze probably has a number of causes, from "profit enhancement"/"productivity" improvements to outsourcing driving down wages, reduced demand for some categories of employee, etc.

Look at the social security web site to see how they calculate wage based increases prior to issuance of benefits, vs how they're adjusted after benefits commence. The wage increases are a fair bit higher.
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Old 07-09-2007, 02:04 PM   #22
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What about young people? 20s, 30s? Do their wage, salary keep up? Are they getting 6-7% yearly raise?
I think the way young people do it is through productivity growth. As they age, they do their job better, receive significant raises and promotions, etc.

If they are in the type of job that doesn't require productivity growth, my guess is they probably don't.
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Old 07-09-2007, 02:08 PM   #23
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No, we are all penniless and livng under overpasses because inflation made us poor. Since I am a little slow today, I will be having frog for dinner because they are easier to catch.
A very good example in this instance of how someone earning a competitive rising wage doesnt feel the effects of inflation as much as someone who is already retired for the long haul. Thanks Brewer.
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Old 07-09-2007, 02:09 PM   #24
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CFB, do you still have a link to those stats?
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Old 07-09-2007, 02:26 PM   #25
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Some "end of the open hose" data sources for perusing:

Usual Weekly Earnings of Wage and Salary Workers
About.com: http://www.bls.gov

A nice summary article:
Report: Most workers not seeing wages outpace prices - Aug. 28, 2006

A BLS summary:
http://www.bls.gov/news.release/pdf/realer.pdf

Where you get some interesting stuff is when you winnow out the highest 20-25% wage earners. Their wage increases are thumping inflation. The lower 75-80% are seriously underperforming.
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Does inflation matter?
Old 07-12-2007, 08:13 AM   #26
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Does inflation matter?

Inflation matters as it is yet another reason to put your money in the areas where inflation hits you the least. Note to self: I must hate the money markets.
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Old 07-12-2007, 09:30 AM   #27
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Indeed. I find it ironic that the investments usually marked as "safe" are the ones most exposed to inflationary pressure, while those marked as "risky" are the least exposed to it.

In my mind, the riskiest approach is to buy investments that claim to be "proof" against inflation...without at least making sure they'll do that for your spending situation.

Because once you're there, you only have one option for "fixing" the problem.
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Old 07-12-2007, 11:18 PM   #28
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In the past 3 years I have tried to keep a tight control on our personal rate of inflation and I have managed to keep our expenses right at 60K a year since 2004. I have done so by cutting down on some expenses (phone bill, insurance, investment fees and commissions, etc...) and by shopping smarter (book flights longer in advance, plan for meals before hitting the grocery store instead of succumbing to impulse buys...). But also one of our biggest budget item (mortgage interests) has declined over the last 3 years, as have our health insurance premiums (yes that's right). Overall this tight inflation control did not force us to buy less or do less, it just forced us to look at each expense individually and try to identify cheaper alternatives. We still have a phone and we still use it as much as we did 3 years ago, but we pay less per minute. Same with insurance, same coverage as before but cheaper. As for investment expenses, we fired our FA and transferred our money to Vanguard. We still fly and go on vacation, but instead of booking 2 months before departure we book the trip 5-6 months earlier. You get the drift, it's not a question of tightening our belt by cutting things out of our budget, it's just smarter spending.
As somebody mentioned above, it would be difficult to keep this whole experiment going indefinitely. At some point, our expenses will have to start rising, but the past 3 years of inflation control will have a lasting effect: Overall I estimate that this excercise has reduced the size of the nest egg needed for us to retire by several hundred thousands dollars. I would like to keep that experiment going for another 2 years if possible.
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Old 07-13-2007, 08:45 AM   #29
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Oh, boy another inflation thread...I think this is probably one of the more important issues on wealth creation/destruction... I think 6-7% personal inflation rate is what I have used for an estimate....of course, this doesnt include the "mcdonalds, grisley chicken nugget factor" (declining customer service and quality)...

Comparing food prices does get a bit difficult and maybe milk prices (something that isnt reduced in size or can easily be filled with sawdust) is a better for tracking...

My home heating costs are 15-18% increases...but that is the whole energy thing and living in a colder climate...trying to figure what averages the number down to 6-7% let alone 4%...
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Old 07-13-2007, 09:52 AM   #30
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I have done so by cutting down on some expenses (phone bill, insurance, investment fees and commissions, etc...) and by shopping smarter (book flights longer in advance, plan for meals before hitting the grocery store instead of succumbing to impulse buys...). ..
We have done the same things since 2002 when we ER'd. However, 2007 is the first year that no structural shifts are helping keep costs flat. We are finding personal inflation to be running in the 6-7% range YTD.

Air fares, gas, utilities, food, liquor all up considerably. Fewer deals at Costco, and the supermarkets. Yellowtail shiraz was 6.99 now 8.99, Popov vodka was 10 now 10.50, etc. (OK I do remember the liquor prices!)
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Old 07-13-2007, 10:10 AM   #31
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I wonder if you are confusing having enough cushion to handle inflation happily, versus whether inflation matters. By "cushion," I'm referring to having more money that you need to live comfortably, or the willingness and ability to live smaller and cheaper. Either one will buy you time against inflation.

IMHO, it matters a lot. Things basically double in cost every 20 years or so, with periods of much faster price increases once in a while. If you have no inflation plan, you just get poorer every year. You would disregard inflation at your own peril unless your cushion is very large.

My understanding is that stock markets generally don't like inflation, either.

20 years ago I bought a brand new VW jetta for 10K I could buy a brand new toyota scion Xa today about the same size and better safety features for 13K. Bought a townhouse in NJ for 190K in 1987 today you could buy a house for 190K today in many parts of the country, Brand New.

I can still buy a 6pack of beer for under 2.50 . Same as 20 years ago. looking at an old electric bill. Cost per KWH was 11.6 cents in 1987 I am payin 9.045 cents a KWH today.. LESS!
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Old 07-13-2007, 10:23 AM   #32
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All of this points out that if you live in a crappy part of the country, drink crappy beer, and drive a crappy car you can avoid inflation.

But if you live in california (my house sold for $225k 7 years ago, $575k today) , drink good beer (Sierra Nevada could be had for $4 a six pack 5 years ago, regularly $7 now), and drive a nice car (my expedition sold for $22k in 2000, same car goes for about 34k now)...maybe a different result.

Which is why you oughta know what your inflation rate is.

Between people who, like me, are seeing up to 7% and people who feel their rate is at or near zero, is anyone getting the message why I keep poking that CPI thing and 'inflation protected' securities with a stick?
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Old 07-13-2007, 10:39 AM   #33
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20 years ago I bought a brand new VW jetta for 10K I could buy a brand new toyota scion Xa today about the same size and better safety features for 13K. Bought a townhouse in NJ for 190K in 1987 today you could buy a house for 190K today in many parts of the country, Brand New.

I can still buy a 6pack of beer for under 2.50 . Same as 20 years ago. looking at an old electric bill. Cost per KWH was 11.6 cents in 1987 I am payin 9.045 cents a KWH today.. LESS!
Agree on car. I bought my first new car, a Corolla in 1986 for 9K. Today the least expensive Corolla is 13K, but is head and shoulder above the other in every category. Inflation: 1.8%

Disagree on house, beer. Don't know about electricity.

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, and drive a crappy car you can avoid inflation.

....
, and drive a nice car (my expedition sold for $22k in 2000, same car goes for about 34k now)...maybe a different result.
I beg to differ. I would not call a Toyota Scion a crappy car. The Expedition, maybe.
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Old 07-13-2007, 11:05 AM   #34
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For certain its a decent vehicle. However, pricewise I doubt you could name more higher end cars than cars that are lower end.

Comparing a Jetta from 20 years ago, an expensive german higher end vehicle, with an entry level Toyota of today...seems a bit unreasonable.

Entry level priced vehicles from 20 years ago cost $3-5,000. Not 10k.

Comparing anecdotal data on large purchases made once every 5-10 years like televisions and cars also does not make a particularly valid assessment.

Whether the current product has a higher quality level or not is also up for serious debate. While you might be getting a better value, you still have to pony up the dollars. Explaining to your portfolio that it doesnt need to go down quite so much because you got a better quality item doesnt seem to work.
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Old 07-13-2007, 11:11 AM   #35
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20 years ago I bought a brand new VW jetta for 10K I could buy a brand new toyota scion Xa today about the same size and better safety features for 13K. Bought a townhouse in NJ for 190K in 1987 today you could buy a house for 190K today in many parts of the country, Brand New.

I can still buy a 6pack of beer for under 2.50 . Same as 20 years ago. looking at an old electric bill. Cost per KWH was 11.6 cents in 1987 I am payin 9.045 cents a KWH today.. LESS!

And your point is what? That there's no inflation? :confused:
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Old 07-13-2007, 11:11 AM   #36
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Entry level priced vehicles from 20 years ago cost $3-5,000. Not 10k.
As I reported above, my brand new 1986 Corolla cost 9K in October 1986. It was an entry level car.
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Old 07-13-2007, 11:24 AM   #37
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i retired (well, in my mind i just quit) before knowing much of finance, investments or this forum and hadn't at all taken inflation into account in figuring out what i'd need. fortunately, i was just as stupid about inflation as i was about investing and so i didn't know about markets or dividends or swr's either. so since i figured conservatively and since i'm not a spender, it all worked out ok. what i thought i'd have to spend without figuring inflation is just about what i will have to spend including inflation.
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Old 07-13-2007, 11:29 AM   #38
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I guess we can debate the level of vehicles endlessly, but my recollection was that cars like the Yugo and Hyundai Excel were considered entry level, at $4k and 5k respectively. I also believe the Tercel was toyotas entry level vehicle in 1986, at a price, well equipped, of around $5500-6000.

Stepping away from mass produced vehicles, Maddy's point of diminishing product quality/quantity conjoined with price increases is also well taken. A pound of coffee is now 12 ounces. The fish and chips place up the street from me doesnt offer free refills anymore...and the size of the piece of fish you get seems to have gotten smaller and thinner. The barbecue joint charges extra for a cup of sauce you used to get for free. Major appliances used to be counted on to last 15-20 years...I'm betting that ones made more recently arent quite so good. You used to be able to call a company up, talk to a human being, and have someone actually give a hoot that you were unhappy about a product, and they'd try to fix it for you. Now you go through voice menu hell to wait on hold for 20 minutes until you get to speak to "bob" from india, who reads from a script that has nothing to do with your problem and really could care less if it works out or not.

But I guess if you believe prices havent changed in 20 years, and that one can live as well now on what was considered good money then...what was a very good salary 20 years ago? 25K? 30K?
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Old 07-13-2007, 11:32 AM   #39
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All of this points out that if you live in a crappy part of the country, drink crappy beer, and drive a crappy car you can avoid inflation.

But if you live in california (my house sold for $225k 7 years ago, $575k today) , drink good beer (Sierra Nevada could be had for $4 a six pack 5 years ago, regularly $7 now), and drive a nice car (my expedition sold for $22k in 2000, same car goes for about 34k now)...maybe a different result.

Which is why you oughta know what your inflation rate is.

Between people who, like me, are seeing up to 7% and people who feel their rate is at or near zero, is anyone getting the message why I keep poking that CPI thing and 'inflation protected' securities with a stick?
Crappy beer? Hey now Pabst blue ribbon was made in Newark NJ and I still drink it although its made someplace else by some other brewer but tastes the same. 2.29 a six pack here in NC today long neck bottles.
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Old 07-13-2007, 11:34 AM   #40
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I'd call it 'rat urine', but thats an insult to any self respecting rat.
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