Wow, inflation has been low!

[eytonxav]

I've said this before, but will say it again, now is a good time to buy tips given the low inflation forecasts, just in case the forecasts are wrong sooner, rather than later.

 

[Amethyst]

Have tracked expenses carefully for 6 years. Groceries have gone up 50% in that time. Insurance has risen from 30% to 100% depending on type. Cost of having repair person come out has gone from $95 to $145. Lawn tractor service (pick up drop off) costs twice what it cost in 2009.

Amethyst

 

[rbmrtn]

Just out of curiosity, I look at Japan's M1 and M2. Holy money!

Between 1980 and now, its money supplies grew several fold. Add deflation on top of that, and that's a lot of cash sitting there. Cash that people hoard and not used for anything. Cash that is hoarded the same way that gold is hoarded by some people. You keep it just because it's good to have, and not because you want to exchange it for something else that is truly useful.

Hmmm... Why does that ring a bell? Is it because that's what we misers often talk about in this forum; hoarding money just for the pleasure of counting it?

The demographics in Japan is part of the issue. Large and growing elderly population that doesn't spend money. It's pushing on a rope.

US maybe going the same as the wave of boomers head into reduced spending years

I was always a Scrooge Mcduck fan myself

 

[audreyh1]

I've said this before, but will say it again, now is a good time to buy tips given the low inflation forecasts, just in case the forecasts are wrong sooner, rather than later.

From what I read it's better to wait until inflation raises it's head before buying TIPs. You don't get an advantage buying ahead of time.

 

[eytonxav]

From what I read it's better to wait until inflation raises it's head before buying TIPs. You don't get an advantage buying ahead of time.

Possibly, but price can move up very quickly unless you are paying close attention or your clairvoyant. Probably not something that should be market timed, but if your port is devoid of tips, now is a good time to allocate as part of your bond mix.

 

[audreyh1]

Possibly, but price can move up very quickly unless you are paying close attention or your clairvoyant. Probably not something that should be market timed, but if your port is devoid of tips, now is a good time to allocate as part of your bond mix.

Personally, I don't invest in TIPs. Or any long-term bonds.

TIPs are quite vulnerable to rising long-term interest rates.

Why TIPS Won't Protect Against Rising Rates

 

[Lsbcal]

If TIPS were to offer 2% or higher real yields, I'd consider them strongly. But right now the 10 year TIPS are at 0.27% : United States Government Bonds - Bloomberg

I might even get a bit of them if they were at 1%.

Even with rising rates, I think it's possible to make over 1% real over the coming years. That's what my data shows for the 1954 to 1977 rising rate period using a variable maturity strategy.

 

[rodi]

This thread made me look at my personal spending from an inflation spending POV.

Groceries - steady for 3-4 years. This despite the increasing appetite of 2 boys in middle school - one who seems to directly convert caloric consumption to growth in height and shoe size. (Kid's in size 14 shoes and already 6' at age 14 - but skiiiiiiinnny). I expected to see some increase since we're cooking from scratch more now that I'm retired, and we're buying more high end/organic ingredients. But... nope. Spent $200 less last year than the year before.

Autos - 2014 saw a big tick down - mainly in gas consumption. We also had fewer repairs to our older cars. Probably because I dropped my commute mid year. We still schlep our kids to school and/or the bus stop for their non-neighborhood magnet school.

Insurance - 1% uptick for homeowners/auto. Added umbrella last year so that's new. Had a HUGE increase in health insurance... Went from employee subsidized to cobra mid year. I am paying full freight for an exchange coverage this year (because covered CA would not let me have 2 plans - one for hubby, one for kids & me if we took subsidy). I'll get the subsidy back in the form of a tax refund in 2016. If I apply that tax refund to the 2015 year, it would show rates similar to my employer provided coverage.

Shelter. Maintenance is on budget. We had some big spikes (remodeled kitchen, new windows) but that's all paid for.

Utilities. Phone went down. Cable went down. (changed cell carriers, switched to VOIP, downgraded cable package.) Gas and lights - slightly up. New windows reduced consumption, increased rates took that savings. Expect increase this year since rate increases kicked in 1/1/2015.

Overall - our spending is where I expected, with no inflation adjustments. I accounted for increased healthcare, less driving, etc.

 

[audreyh1]

Our living expenses in 2014 were lower than 2013, in spite of a rather pricey European trip. We had trimmed some of our monthly expenses (which included dropping cable early in the year - yeah!), so that was part of the difference.

 

[eytonxav]

Personally, I don't invest in TIPs. Or any long-term bonds.

TIPs are quite vulnerable to rising long-term interest rates.

Why TIPS Won't Protect Against Rising Rates

I think tips may be more sensitive to raising inflation expectations than rising interest rates, and they provide a diversifier to ones bond holdings. Rick Ferri, Larry Swedroe and others were always proponents of maintaining some allocation to tips. Right now inflation expectations are almost non-existant, so it seems they might out perform other treasuries if inflation picks up and rates increase. I guess that assumes one would want to have some position in US treasuries vs other types of bonds.

 

[Options]

This thread made me look at my personal spending from an inflation spending POV.

Groceries - steady for 3-4 years. This despite the increasing appetite of 2 boys in middle school - one who seems to directly convert caloric consumption to growth in height and shoe size. (Kid's in size 14 shoes and already 6' at age 14 - but skiiiiiiinnny). I expected to see some increase since we're cooking from scratch more now that I'm retired, and we're buying more high end/organic ingredients. But... nope. Spent $200 less last year than the year before.

Autos - 2014 saw a big tick down - mainly in gas consumption. We also had fewer repairs to our older cars. Probably because I dropped my commute mid year. We still schlep our kids to school and/or the bus stop for their non-neighborhood magnet school.

Insurance - 1% uptick for homeowners/auto. Added umbrella last year so that's new. Had a HUGE increase in health insurance... Went from employee subsidized to cobra mid year. I am paying full freight for an exchange coverage this year (because covered CA would not let me have 2 plans - one for hubby, one for kids & me if we took subsidy). I'll get the subsidy back in the form of a tax refund in 2016. If I apply that tax refund to the 2015 year, it would show rates similar to my employer provided coverage.

Shelter. Maintenance is on budget. We had some big spikes (remodeled kitchen, new windows) but that's all paid for.

Utilities. Phone went down. Cable went down. (changed cell carriers, switched to VOIP, downgraded cable package.) Gas and lights - slightly up. New windows reduced consumption, increased rates took that savings. Expect increase this year since rate increases kicked in 1/1/2015.

Overall - our spending is where I expected, with no inflation adjustments. I accounted for increased healthcare, less driving, etc.

+1 to above posters who state spending hasn't increased in years.

Groceries - Haven't calculated exactly, but is probably lower than in the past.

Auto - Will experience a big uptick this year as I replace my auto with another, but am looking forward to it.

Shelter - No increase in years, except property tax has increased by a few percent in the past 10 years

Healthcare - Employer's healthcare premium has increased from zero monthly premium (single employee only) to about $100 monthly and increased office copay amounts.

Utilities - Unchanged, even after adding increased DSL speed (costs have come down)

Entertainment - fallen substantially over the past 10 years as I almost never go to movies anymore, after having gone 1-2 x per week for more than a few decades. With Hulu and youtube I find the expense/hassle of going to the movies absolutely not worth it anymore.

Cost of personal care and clothing has fallen as well. Overall, personal budget has not increased in over 10 years.

 

[HFWR]

Information on the various CPI numbers, and how they're calculated, are available here.

Though there may be ulterior motives, it's not really a "secret"...

 

[MooreBonds]

Groceries - steady for 3-4 years. This despite the increasing appetite of 2 boys in middle school - one who seems to directly convert caloric consumption to growth in height and shoe size. (Kid's in size 14 shoes and already 6' at age 14 - but skiiiiiiinnny). I expected to see some increase since we're cooking from scratch more now that I'm retired, and we're buying more high end/organic ingredients. But... nope. Spent $200 less last year than the year before.

Insurance - 1% uptick for homeowners/auto. Added umbrella last year so that's new. Had a HUGE increase in health insurance... Went from employee subsidized to cobra mid year. I am paying full freight for an exchange coverage this year (because covered CA would not let me have 2 plans - one for hubby, one for kids & me if we took subsidy). I'll get the subsidy back in the form of a tax refund in 2016. If I apply that tax refund to the 2015 year, it would show rates similar to my employer provided coverage.

Utilities. Phone went down. Cable went down. (changed cell carriers, switched to VOIP, downgraded cable package.) Gas and lights - slightly up. New windows reduced consumption, increased rates took that savings. Expect increase this year since rate increases kicked in 1/1/2015.

Overall - our spending is where I expected, with no inflation adjustments. I accounted for increased healthcare, less driving, etc.

Groceries - when you mentioned you cook from scratch more, I would expect that to reduce costs, not increase. I see that you are buying more 'organic/high-end' ingredients, but you'd be surprised how cheap things are when you aren't paying for convenience.

Health Insurance - but are you comparing apples to apples, once you factor in deductible, network, co-pays, etc.?

Utilities - You mention that you reduced your phone to VOIP - that's a reduction in the 'quality' of the service you are paying for. It would be incorrect to label that deflation, since the 2 products are not the same. And with your cable, you say that you downgraded your cable package and you are paying less. Again - if you switch to a lower quality product/service and it's the same or lower price, that's not automatically deflation. You could actually be paying MORE for the lower quality service/product compared to the prior year's price of that lower quality product/service.

It's fine to cut corners and substitute products/services, but don't confuse that with price stability/offsetting, or deflation.

 

[rodi]

I see your point MooreBonds - but I was looking at it from a personal POV - like Mulligan was with ACA changing his health insurance premium.

I tried to note what I considered factors in changes. (Changed providers, changed commute, changed energy rating of the house, etc.)

 

[Meadbh]

My expenses have decreased quite a bit since ER, mostly due to lifestyle changes rather than inflation rates.

 

[Shawn]

Below are my annual expenses since 1999. It's difficult to compute a personal inflation rate since my financial situation and needs fluctuate each year. However, nothing too extreme in terms of expenses has happened during this time (except for the high veterinary bills that are separated out). My regular expenses have held steady at about $30K/yr (approximately $10K/yr mortgage, $5K/yr charity, and $15K/yr living expenses).

If inflation was 5%/yr, my $30K expenses in 1999 would be about $60K today. If inflation was 10%/yr, I would be spending $120K today. Clearly, this is not happening, at least in my situation.

I think there has been some personal inflation (e.g., utilities have noticeably gone up, as has some food), but I also think I've become more frugal with time. There certainly has been inflation in medical costs, but my employer pays most of my insurance so I don't see this (and I'm never sick). I know that there's been even more inflation in educational costs, but I have no children so this doesn't directly impact me.

1999 ($30,915)
2000 ($33,454)
2001 ($27,325)
2002 ($31,751)
2003 ($29,757)
2004 ($25,510) [plus $18K in veterinary bills]
2005 ($29,424) [plus $5K in veterinary bills]
2006 ($30,735)
2007 ($29,703)
2008 ($31,846)
2009 ($23,878)
2010 ($26,108) [plus $17K for a new car]
2011 ($28,845)
2012 ($27,539) [plus $15K in veterinary bills]
2013 ($26,860) [plus $20K in veterinary bills]
2014 ($29,854) [plus $14K in veterinary bills for friend's pets]

 

[Independent]

We track expenses very closely. Our "basic" expenses have gone up about as [-]fast[/-] slowly as the CPI in the 8 years that I've been retired.

"Basic" excludes gifts, very erratic major travel, and healthcare (my wife had a major disease and that impacted our trend). But, it includes food, energy, etc.

 

[ERhoosier]

Stability in spending is not necessarily evidence of no/low inflation. Choosing to substitute lower priced products/services in one's life does not mean inflation went away. If I was eating salmon and T-bone steaks on my food budget last year but spent the same this year by buying canned tuna and ground beef that does not mean that food inflation was zero.

BLS has claimed that such substitution is not included in their surveys, however to quote its own website FAQ-
"How is the CPI market basket determined? The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. For the current CPI, this information was collected from the Consumer Expenditure Surveys for 2011 and 2012. In each of those years, about 7,000 families from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 7,000 families in each of these years kept diaries listing everything they bought during a 2-week period"
Consumer Price Index Frequently Asked Questions


IOW- The actual "basket" of goods/services being measured does change over time. IMHO- Surveys collecting data on folks choosing to buy cheaper stuff in a time of relative wage deflation is NOT the same as measuring real inflation, or the price change of the same goods/services over time.

I am NOT saying current inflation is what many of us lived through in the 70's/80's, but I gotta throw the BS flag when I hear that inflation is under 1%.

 

[FANOFJESUS]

Have tracked expenses carefully for 6 years. Groceries have gone up 50% in that time. Insurance has risen from 30% to 100% depending on type. Cost of having repair person come out has gone from $95 to $145. Lawn tractor service (pick up drop off) costs twice what it cost in 2009.

Amethyst

Things you need go up much faster than the CPI. Someone remarked to my father how cheap TV were now. My father responded but how often do I buy a TV one every fifteen years. He said I buy food everyday.

 

[Options]

Stability in spending is not necessarily evidence of no/low inflation. Choosing to substitute lower priced products/services in one's life does not mean inflation went away. If I was eating salmon and T-bone steaks on my food budget last year but spent the same this year by buying canned tuna and ground beef that does not mean that food inflation was zero.

...

This. And I am guilty of not qualifying in my above post the reason my overall costs have remained the same for many years is because I have been doing exactly that: substituting. I've also noticed I've been eliminating some spending as well. OTOH, I did so on purpose as I used to have pretty inflated tastes in my younger years, and as I've grown older, much less of that appeals to me. Consequently tuna is just as satisfying than T-bone steaks (in my case more so as I don't eat meat) .

 

[ejman]

I suspect that if we have an agenda item to "prove" that official CPI numbers are rigged, we will find the data in this wonderful internet world to prove so. And viceversa. All I can say is that my personal expenditures have been remarkably level since ER. It's not a scientific study but I've spent about 64K in living expenses since then and my standard of living is about the same, I eat about the same, go out as often do the same things etc. Scientific validity of this ZERO. But anybody who says that inflation is currently rampant and astronomically higher than CPI - I call BS when I see it.

 

[Lsbcal]

I haven't been tracking the cost of Hostess cupcakes but I do buy a few annually.

 

[Mulligan]

I see your point MooreBonds - but I was looking at it from a personal POV - like Mulligan was with ACA changing his health insurance premium.

I tried to note what I considered factors in changes. (Changed providers, changed commute, changed energy rating of the house, etc.)

Rodi, you can tie me to a stake and administer a Singapore Canning, and I will still say it's inflation, or at least until I cannot stand the pain. And to ER Hoosier's later point on substitution, I got the worst of both worlds on it. A $200 plus increase and was substituted to a narrower network and $1500 higher deductible to boot. Now that is some rampant inflation!


Sent from my iPad using Tapatalk

 

[Hamlet]

Here is the thing though-- have you ever sat down and tried to honestly calculate it?

Just about anyone who tries to pick a representative basket of goods and then actually tracks it, ends up somewhere in the ballpark of BLS.

MIT did it--

US Daily Index » The Billion Prices Project @ MIT

Are they cooking the books too?

The problem is that almost everyone remembers the increases, but forgets about the decreases.

I am NOT saying current inflation is what many of us lived through in the 70's/80's, but I gotta throw the BS flag when I hear that inflation is under 1%.

 

[photoguy]

I think substitution and changing market baskets is a good thing. Otherwise we'd have weird effects like the inflation rate of film (23% in the last CPI update) being too heavily weighted.

Alternatively I believe the Billion Prices Project (or pricestats) does not use any product substitution at all. Their inflation numbers are comparable to BLS CPI-numbers for the US.