Interesting! - My personal rate of inflation has dropped!

[Cut-Throat]

With all of the talk about Gold and Oil Rising, I thought about computing my personal rate of Inflation for the last 12 months ending today vs. the 12 months prior to that.

I track everything with Quicken and decided to include only categories that are mostly not discretionary. Like Electricity, gasoline, Groceries, Property Taxes, Water Bill, auto Insurance, Natural Gas, House Cleaning, Health Club, Association Fee, Life Insurance.

I thought this mgiht make the number higher because it contains a lot of Energy related items.

I was actually shocked to see that the above items cost about $23,700 in the previous year and $23,500 in the last 12 months. My personal rate of inflation actually dropped!

Maybe the CPI rate is not that far off after all!

My Grocery Prices, Taxes and Insurance have offset the Energy Costs.

 

[TromboneAl]

That calculation wouldn't work so well for us because there are always changes in how we consume that overwhelm any small inflation-related changes.

For example, propane use dropped because of switch to on-demand water heater. Electricity use dropped when decided to shut off computer at night, auto insurance changed when DD left for college, grocery costs went down when stopped buying name brands and joined CostCo, etc.

There will probably always be changes like this that make it hard to estimate our personal inflation.

 

[audreyh1]

Hey TromboneAl - it looks to me like your personal rate of inflation dropped! Does it matter how your cost of living was lowered? As long as you have the same quality of living (or higher), you're getting more for your money!!!

Audrey

 

[TromboneAl]

Yes it's dropped by a lot this last year. But it matters for calculations in the future, cause I can't keep cutting back on groceries forever.

 

[Cut-Throat]

Yes it's dropped by a lot this last year. But it matters for calculations in the future, cause I can't keep cutting back on groceries forever.

I guess my point was that Energy prices increased by a large margin last year. Since I did not cut back at all. I just looked at my expenses that are monthly and I have little or no control over. I was actually going in to this thinking it would be a lot larger than the stated CPI.

I was surprised that I wrong! - I now feel a bit more comfortable with the stated CPI and for that matter TIPS! My knee jerk reaction, before was that the CPI was understated, despite a lot of economists views that it was not.

Medical costs are a lost cause, I don't even attempt to predict costs on this one.

 

[TromboneAl]

CT, it would be interesting if you analyzed it further. For example, what went up, what went down? I'd be surprised if your electricity, natch gas, housecleaning, water rates, went down, so maybe your consumption of those things decreased.

 

[MJ]

Since I am purposely increasing my expenses now that I have retire, going from LW(ay)BYM to LBYM, I can only go by the prices I pay. Even though I am still very frugal, my many regular expenses have definitely gone up in NYC, such as food (4%), house (6%) and liability (10%) insurance, utilities (40%). My health insurance premium remained flat with a small increase in the co-pay.

 

[Cut-Throat]

CT, it would be interesting if you analyzed it further. For example, what went up, what went down? I'd be surprised if your electricity, natch gas, housecleaning, water rates, went down, so maybe your consumption of those things decreased.

Actually those items went up, but were offset by Insurance Costs, property taxes and groceries. I used more electricity and Natural gas. But less gasoline. Water was about the same.

 

[MileKing]

I see inflation everywhere and continue to wonder how the CPI can be correct. Actually, I don't wonder about the CPI anymore as it is clearly incorrect or massaged so it suits political purposes. I can't think of a single expense category that has dropped in price over the past 12 months. Auto fuel, air fares, hotels, car rentals, natural gas, many food products, homeowners insurance, cable....all up, some significantly. Electricity, water, phone, and auto insurance have remained the same.

 

[MJ]

I don't consider reducing expenses as a reduction of my rate of inflation. For example, I lowered my house insurance premium by safely lowering the insured value of my house. I cut my DSL bill in half by going from 1.2M to 768k. If I decided to live on bread and water, my food bill would go down significantly.
As I said earlier, it not how much you spend but if the same identical services or goods went up or down in cost.

 

[Cut-Throat]

I don't consider reducing expenses as a reduction of my rate of inflation. For example, I lowered my house insurance premium by safely lowering the insured value of my house. I cut my DSL bill in half by going from 1.2M to 768k. If I decided to live on bread and water, my food bill would go down significantly.
As I said earlier, it not how much you spend but if the same identical services or goods went up or down in cost.

These things are hard to measure. But take this example. I had 2 phone lines last year and dial-up AOL at $75 month. I finally got DSL in my area and was able to eliminate AOL and 1 of the phone lines. Total Bill is now $49 a month and it is better, faster, cheaper. There is one item for me that dropped over 30% and I increased my service level.

 

[laurence]

These things are hard to measure. But take this example. I had 2 phone lines last year and dial-up AOL at $75 month. I finally got DSL in my area and was able to eliminate AOL and 1 of the phone lines. Total Bill is now $49 a month and it is better, faster, cheaper.  There is one item for me that dropped over 30% and I increased my service level.

A real example of hedonics at work. Maybe my raise did match cost of living....boy, I'm really bent...

 

[MJ]

I guess it is a matter of symantics.
As my life goes through drastic ER changes, my varied expenses will jump all over the place. I don't plan to have an apartment for at least 6 to 12 months, so expenses such as rent, land phone, cable, gas , electricity ,home insurance etc. will be suspended while other travel related expenses will increase dramatically.

 

[laurence]

But I'm buying lotto tickets, isn't that high risk/high reward entrepreneurialism?

My name is Maximus Laurence Meridius, Commander of the IT Security Armies of the North, General of the Geek Legions, loyal servant to the true emperor, Bill Gates (gasp!). Victim of a sorry a** raise, and I will have my vengeance...

...June 2007, that's the goal date for upward and onward.

Sorry for the thread hijack, I have my own.

I've always thought CPI was pretty accurate, the way they massage it by removing all sorts of stuff. The problem is, the stuff they remove is what I spend my money on!

 

[Gone4Good]

People only tend to focus on the price of things that go up. Over the past 12-18 months I've experienced the following:

1) ~$300 / month interest cost savings on my mortgage
2) Dumped weekly rentals from Blockbuster for Netflix and save about $20 / month
3) Auto insurance has gone down about $125 / year in each of the past two years
4) Called around and got quotes for Auto and Homeowners insurance and looking to add an umbrella policy. I expect to spend less for all three in 2006 then I paid for just Auto and Home in 2005.
5) Last month I revisited my fixed-line telephone plan and discovered that the plan I was on wasn't even offered any longer. The new pricing for the same plan was about $10 / month cheaper
6) Cellphone company is after me to increase my allowed minutes for the same monthly rate . . . I'm going to check into whether I can reduce the cost for the same # of minutes.

 

[gayl]

Using 2003-4 as a base, my expenses went up 80% my first year in retirement but then dropped back down the 2nd year. [46% higher than when working in 2003-4 but 20% lower than the 1st year out!] Guess that was b/c I spent alot of time on cruises that first year and spent more time on land travel last year. Time to get away again!

 

[mathjak107]

a lower rate of inflation isnt lowering our living standards or substituting cheaper products or doing with out....your fooling yourself....dont forget all the things you get that are less than at the same price..a pound of coffee is 15 oz,,,hersheys kisses shrank 2 ounces to the bag...yogurt went from 8 to 6 ounces.....dont forget all the things your paying for and not getting in the service sector...any layed off gov't workers? did they refund your taxes that were paying for them?....you get the idea!

 

[HFWR]

uh, a pound of coffee is 13oz...

 

[BigMoneyJim]

I'm not sure what CPI is, but I noticed last Februrary that my "merit increase" didn't cover my lunches. The "cheap" mexican food place jumped a dollar or two per meal. That didn't even factor in that gas had shot through the roof. Over the past two years my salary has shrunk in real terms.

 

[mickj]

... "cheap" mexican food ... gas had shot through the roof...

Eat less mexican food

 

[justin]

I'm not sure what CPI is, but I noticed last Februrary that my "merit increase" didn't cover my lunches. The "cheap" mexican food place jumped a dollar or two per meal. That didn't even factor in that gas had shot through the roof. Over the past two years my salary has shrunk in real terms.

I feel your pain, bro. The local cheap mexican restaurant went from $4 to $4.25 this past year. That's a freaking 6.3% increase! In the meantime, my salary has only increased 2.1% since my hire two years ago. Where am I supposed to get that extra $0.25 from ($0.28 after taxes)? I'm gonna have to start hedonistically adjusting some of those free chips and salsa into my pockets for my afternoon snack to make up for the price increase.

 

[youbet]

Over the past two years my salary has shrunk in real terms.

Yep, mine too.

There does seem to be some confusion in the thread concerning the difference between inflation and your personal budget.  Inflation impacts our personal budgets when goods and services we purchase increase in price.  We can sometimes compensate by buying less or by buying substitute goods and services.  Typically, planning budgets for a long retirement involves both buying less and finding lower cost substitutes in order to reduce the impact of inflation. 

 

[Jarhead*]

My personal rate of inflation actually dropped!

Cutthroat: How about workers comp. for your Butler? (I'd be surprised if that didn't go up).

 

[d]

confusion ... concerning the difference between inflation and...

there are three different but related concepts ... inflation, cost of living, and standard of living. If we buy Q units of "stuff" and price P ... inflation references change in P, cost of living references PxQ with Q held constant, and standard of living references Q

 

[work4beer]

Well, there was an article at Kiplinger's about calculating your personal CPI:

http://tinyurl.com/nnzu4

By adjusting for how much YOU spend in the various CPI categories, you can adjust accordingly. Mine came out to 2.08% or 2.82%(*) vs. the official 3.2%. In the two big categories, I spend almost nothing (medical care) and less than average (transportation).

This assumes that my market basket matches the gov'ts. Probably not true. But it at least gives you a rough idea of where you're at vs. the official stat.

(*) 2.08 vs. 2.82% depends on what you do with mortgage payments. If you include them in the housing component, I get 2.82%. If you include them seperately as a 0% increase (fixed mortgate) I get 2.08. I plan on staying here for a long time, so that seems realistic. The fact that my house value (or even equivalent rent) has doubled in 6 years doesn't mean my expenses have doubled.



EDIT: Shortnened URL