CPI 4.1% in 2007

[retire@40]

The government reports that higher costs for energy and food pushed inflation up by 4.1 percent in 2006, the largest increase in 17 years.

[spazz]

Quote:

Originally Posted by retire@40 The government reports that higher costs for energy and food pushed inflation up by 4.1 percent in 2006, the largest increase in 17 years.

Boy what's the Fed to do? On one hand they need to assist the credit market / sub-prime with lower rates, but on the other, raise rates to stem inflation and a to keep the dollar from collapsing.
That's going to be quite a juggling act on the Fed's part - Stagflation anyone?

[Independent]

Quote:

Originally Posted by spazz Boy what's the Fed to do? On one hand they need to assist the credit market / sub-prime with lower rates, but on the other, raise rates to stem inflation and a to keep the dollar from collapsing. That's going to be quite a juggling act on the Fed's part - Stagflation anyone?

The last time we had stagflation was in the 70's. We also had a big run-up in oil prices then. I think they are linked.

[W2R]

The official news release from the dept of labor, with detailed breakdown, is here:
ftp://ftp.bls.gov/pub/news.release/cpi.txt

Transportation/energy, food, and medical care really increased a lot. However, apparel and recreation didn't since their increases were only -0.3% and 0.8% respectively.

So the obvious move is to go buy a ton of new clothes and then dress to the nines, go out, and wildly recreate!

It's all in how you read these reports...

[REWahoo]

Quote:

Originally Posted by Want2retire Transportation/energy, food, and medical care really increased a lot. However, apparel and recreation didn't (-0.3% and 0.8% respectively). So the obvious move is to go buy a ton of new clothes and then dress to the nines, go out, and wildly recreate!

Yep, as long as you don't drive or fly to get there, eat anything or hurt yourself recreating, looks like you cost of living is about the same.

[Life_is_Good]

What will be the impact on returns in TIPS funds?

[SecondCor521]

My personal inflation rate has been trending negative over the past several months.

Very nearly half of my current expenses (child support and mortgage interest) are by nature 0% inflationary items.

I am fascinated now with trying to determine a personal rate of inflation over the long term, because I have discovered that changing my spreadsheet number for inflation from 3% to 0% moves my FIRE date earlier by 4 years. I suspect Nords' (I think it was his) opinion that changing lifestyle factors will make this impossible to determine.

2Cor521

[youbet]

Quote:

Originally Posted by SecondCor521 My personal inflation rate has been trending negative over the past several months.

Wow! What categories in your budget are actually going down in price/unit? (Note: not categories you're buying less off, but categories where the price/unit is actually going down.)

Here at our house, we don't seem to be buying any of the few items where prices are dropping like electronics. Rather, we're getting burned by increases in food, energy, dining out, entertainment (huge increases here in Chicago-land) and such.

[dmpi]

Quote:

Originally Posted by SecondCor521 My personal inflation rate has been trending negative over the past several months. Very nearly half of my current expenses (child support and mortgage interest) are by nature 0% inflationary items. I am fascinated now with trying to determine a personal rate of inflation over the long term, because I have discovered that changing my spreadsheet number for inflation from 3% to 0% moves my FIRE date earlier by 4 years. I suspect Nords' (I think it was his) opinion that changing lifestyle factors will make this impossible to determine. 2Cor521

My personal inflation rate is already low. I don't drive much (12K/year for 2 of us). We live in a 1600 SF house, so it's cheap to heat. Our educations are paid for and done. We have good medical insurance thru our employer that pays for just about everything. And we really don't eat that much, but we have been eating out more lately.
I would guess our personal inflation rate is under 1%.

[W2R]

Quote:

Originally Posted by Want2retire Transportation/energy, food, and medical care really increased a lot. However, apparel and recreation didn't since their increases were only -0.3% and 0.8% respectively. So the obvious move is to go buy a ton of new clothes and then dress to the nines, go out, and wildly recreate!

Quote:

Originally Posted by REWahoo Yep, as long as you don't drive or fly to get there, eat anything or hurt yourself recreating, looks like you cost of living is about the same.

ROFL!! You've got a point, there! It's pretty hard to do much without driving there or eating. Guess we can walk to the movies, party (if we just dance and don't snack), go fishing, or walk over to the library to read, if we are careful not to hurt ourselves.

[clifp]

I think I would look better in the new clothes if I ate less, and it would help my chances of prorecreating. Plus it lowers my personal inflation rates!, such a deal.

[SecondCor521]

Quote:

Originally Posted by youbet Wow! What categories in your budget are actually going down in price/unit? (Note: not categories you're buying less off, but categories where the price/unit is actually going down.)

None I can think of offhand.

The statistic I tend to watch the most, besides my net worth, is my last six months' spending in Quicken, so for today I would run a report from 7/17/07 - 1/16/08. Today the number is hovering just over $30K, whereas a few months ago it was around $32K.

There are two major reasons for this.

First, my expenses have a seasonal increase in the summer months due to my young children requiring childcare when they are not in school. Over the next few months my sliding six month window will not include those expenses from last summer.

Second, I am making changes in my behavior to spend less overall. So even though the cost of eating out may be rising at an annual clip of X%, the fact that I'm only eating out twice a month instead of three times a week results in a decrease in my living expenses. I've acquired a PenFed credit card that gives me 5% discount on gas purchases, which reduces my gas cost even though I don't drive any less.

A third effect which will come into play this fall is changing expense levels due to changes in life circumstances. My youngest child will be leaving private kindergarten and entering first grade, which will result in a significant drop (over 10%) in my monthly expenses.

A fourth effect for me is that, as mentioned previously, two of my largest expenditures are fixed (child support) or slightly "deflationary" (mortgage interest).

I'm not sure if any of this falls into the official government definition of "inflation", but what is of interest to me is what my living expenses are and how they are trending, regardless of the underlying reasons for those changes.

[FIREd]

Well my personal inflation numbers for 2007 are in (per Quicken):

Overall inflation (discretionary + mandatory items): -1.4%
Inflation for mandatory items: 0 %

What was up?
Food (groceries only): +20% (increase was not due to buying more groceries, but solely to food price increase).
Gas: +25% (increase was not due to driving more, but solely to gas price increase).
Medical and healthcare expenses are such a small part of our budget rigth now that any inflation there would have had a minimal impact on our overall expenses.

Another expense which went up a lot in 2007 (though not included in the inflation numbers mentioned earlier which include only expenses from net income) was taxes: Fed + State + FICA taxes are up +15% (though income is up only 7%).


What was down:
Utilities: -14% (cost cutting measures)
Other things were also down but only because we happened to consume less in these categories (home repairs, furnishings...) during the past year.
Finally some things were down, not because we consumed less, but because we saved money by shopping around (vacation, books, music...).

[barbarus]

Quote:

Originally Posted by FIREdreamer Well my personal inflation numbers for 2007 are in (per Quicken): Overall inflation (discretionary + mandatory items): -1.4% Inflation for mandatory items: 0 % What was up? Food (groceries only): +20% (increase was not due to buying more groceries, but solely to food price increase). Gas: +25% (increase was not due to driving more, but solely to gas price increase). Medical and healthcare expenses are such a small part of our budget rigth now that any inflation there would have had a minimal impact on our overall expenses. Another expense which went up a lot in 2007 (though not included in the inflation numbers mentioned earlier which include only expenses from net income) was taxes: Fed + State + FICA taxes are up +15% (though income is up only 7%). What was down: Utilities: -14% (cost cutting measures) Other things were also down but only because we happened to consume less in these categories (home repairs, furnishings...) during the past year. Finally some things were down, not because we consumed less, but because we saved money by shopping around (vacation, books, music...).

Firedreamer, you haven't lowered inflation by using less of something, only your standard of living!

[FIREd]

Quote:

Originally Posted by barbarus Firedreamer, you haven't lowered inflation by using less of something, only your standard of living!

I can guarantee you I did not lower my standard of living. I just didn't purchase things that I neither needed nor wanted, that's all! We spent less on furnishings, because our house is now pretty well furnished. And we did not spend as much on home repairs, because fewer things broke after we made a lot of improvements in previous years. As for lowering our utility bills, we still use the phone as much as before, but we now use skype instead of MCI (skype video actually increases my standard of living if anything!). We also installed a programmable thermostat and made our house more energy efficient, so we consume less electricity. We also took the same number of vacations as previous years, but bought our tickets earlier to save money. We bought books used from amazon instead of new from Barnes and Noble (and believe me we don't suffer from that), and we buy select music on itunes instead of buying CDs with 15 songs, 13 of which we don't care for. How is that lowering my standard of living? I still buy all the things I want, I am just more mindful of the way I spend my money.

Actually, we spent quite freely last year. We bought so much new fun stuff last year and we gave so much money to needy family members that I was sure, until the end of December, that we had spent a lot more money in 2007 than we did in 2006. But Quicken doesn't lie, and I was shocked to find out that we had actually spent less (well only a bit less) in 2007 than in 2006. So as you can see I didn't deprive myself of anything and I think we have now found our "natural" standard of living (which I define as the standard of living which you can live with without constantly monituring your expenses).

Now you also have to realize that groceries represent only 10% of our expenses. So a 20% increase there represent only a 2% increase of our total expenses. And gas represents only 2.5% or our budget, so a 25% increase there would only increase our total expenses by 0.6%. If everything else had been constant from last year, that would have represented an increase of only 2.6%. Our lower utility bills (thanks Skype!) cut 2% out of our expenses (again not by lowering our standard of living). So it leaves us with a small 0.6% increase. So as you can see, it means so that the contraction of our other annual expenses was very minimal to get an inflation rate of -1.4% overall.