Latest Inflation Numbers and Discussion

[Gumby]

As one of our larger threads, a new year means time for a new start for this topic.

Here is the link to the old version. https://www.early-retirement.org/forums/f44/latest-inflation-numbers-and-discussion-114292.html

 

[FREE866]

Not sure inflation is really much of a "topic" anymore

 

[audreyh1]

Sure it is. In fact it’s always relevant, even when it’s low or negative.

Fed has gotten close to target, but is it sustainable? Inquiring minds want to know!

 

[FREE866]

Sure it is. In fact it’s always relevant, even when it’s low or negative.

Fed has gotten close to target, but is it sustainable? Inquiring minds want to know!

Does anyone here really change their spending habits based on inflation?


I know I don't and I'm probably much less well off than most of the posters on here

 

[audreyh1]

That doesn’t matter. I’m sure some do. Inflation also affects interest rates and many of us pay attention to what the Fed does and what interest paying assets do.

 

[Sunset]

Inflation has made me realize I have to be aware of how hard is my money "working". Now because interest rates are high, having $20K sit around earning low interest means missing out on perhaps an extra $500.

Also I used to pre-pay some bills, one year I left ~$16K with the IRS instead of asking for a refund on the tax return. It really didn't matter when interest rates were 0% or maybe 1/2 a percent, but now doing that would mean missing out on earning $800

 

[GenXguy]

Not sure inflation is really much of a "topic" anymore

LOL. Huge topic.

Does anyone here really change their spending habits based on inflation?

Absolutely. It sure has, and it also has really reduced what I can get with my money in retirement.

For years prior to the pandemic, I was seriously thinking about relocating. Inflation has really killed that dream, and it keeps getting worse. Just got my latest car insurance bill, and it's up over 20% on the year, with no changes in coverage, not accidents/tickets, or anything. Also, I just got my new insurance premium for 2024, and it's up 33% on COBRA from 2023, but current employees on the plan are saying theirs went up 41%! Inflation hasn't really gone anywhere.

 

[jim584672]

Also, I just got my new insurance premium for 2024, and it's up 33% on COBRA from 2023, but current employees on the plan are saying theirs went up 41%! Inflation hasn't really gone anywhere.

COBRA is always super expensive. I think you will save a lot with the ACA and subsidies.

 

[Chuckanut]

I certainly changed my spending habits because of inflation.

I’d be a fool not to do so. I think the economists call it “substitution”.

 

[FREE866]

I certainly changed my spending habits because of inflation.

I’d be a fool not to do so. I think the economists call it “substitution”.

Well, you are not the norm in this regard.
if you look at actual data consumer spending remained very strong in last couple of years despite inflationary numbers.

But don’t take my word for it
See here:

https://awealthofcommonsense.com/2023/11/we-dont-understand-how-inflation-works/

 

[Ian S]

DH's health insurance at work has barely budged from last year. My medicare premiums have gone up except for Part D costs which have declined slightly. Gas and food prices are down too.

This recent bout of inflation has been nothing like that we experienced in the late 70's early 80's. We've gone through a once-a-century pandemic event and there's a costly war going on in Europe, which, if we're not careful, will spread, forcing us to put boots on the ground. There are many other issues the country is having to deal with. Yet, inflation has moderated far faster than it did in the 80's and still no sign of the bad recession that most everyone was predicting for last year!

So I'm in the camp that believes that inflation, for now, is not that big a deal. I'm also convinced that the inflation we experienced recently was exacerbated by corporate profiteering - something that maybe should be on the agenda going forward.

 

[Montecfo]

Well I look forward to some new actual data to evaluate and discuss. You know, PMI, ADP employment, weekly unemployment claims, continuing claims, nonfarm PR all that good stuff.

And it is all coming this week.

 

[Fermion]

Inflation has made me realize I have to be aware of how hard is my money "working". Now because interest rates are high, having $20K sit around earning low interest means missing out on perhaps an extra $500.

Also I used to pre-pay some bills, one year I left ~$16K with the IRS instead of asking for a refund on the tax return. It really didn't matter when interest rates were 0% or maybe 1/2 a percent, but now doing that would mean missing out on earning $800

Same thing here. I used to leave $30k, $40k parked in the bank for a few weeks when I was planning on a big purchase for our house build. Now I start thinking about $40k x 0.05 x (1/12) = $166 that I am just lighting on fire by doing that.

 

[tulak]

Same thing here. I used to leave $30k, $40k parked in the bank for a few weeks when I was planning on a big purchase for our house build. Now I start thinking about $40k x 0.05 x (1/12) = $166 that I am just lighting on fire by doing that.

One of the reasons I use Fidelity for cash management. I use a brokerage account and it sweeps to a MM fund yielding ~5%. No need to deal with banks.

 

[JoeWras]

Well I guess one "good" thing from last year's Fed excitement was my income for last year. I totally underestimated how much interest I'd make last year, what with me fiddling around with all the Tbills and Tnotes over the last 2 years.

 

[Chuckanut]

Well, you are not the norm in this regard.
if you look at actual data consumer spending remained very strong in last couple of years despite inflationary numbers.

Thank you for telling me that.

 

[Sunset]

Well, you are not the norm in this regard.
if you look at actual data consumer spending remained very strong in last couple of years despite inflationary numbers.

But don’t take my word for it
See here:

https://awealthofcommonsense.com/2023/11/we-dont-understand-how-inflation-works/

Spending is up because the same stuff costs more, so I expect spending to be up by 20% on average compared to a few years ago. To me that's not progress/good.

Also, lets not forget the free money that was sent out, and people working from home (saving commute costs) all gave folks some extra dollars to not care so much about inflation.
Combine that with the cooped up feeling of Covid, and a lot of cruise ships did fill up, due to pent up demand. I think that pent up demand is waning, as we went on a cruise that was 1/2 the price normally charged (not fake sales price), as within the last 3 weeks they needed to add more people.

But now that the free money is spent, we may see a reduction in what is bought, because folks spend all their money on other things and run out.

Naturally, people with large savings (retired) will continue to spend and just pay more.

 

[SecondCor521]

Well, you are not the norm in this regard.
if you look at actual data consumer spending remained very strong in last couple of years despite inflationary numbers.

But don’t take my word for it
See here:

https://awealthofcommonsense.com/2023/11/we-dont-understand-how-inflation-works/

Substituting is actually entirely typical and normal. It's also rational whether inflation is high or low.

If the price of beef goes up, people switch to chicken. But inflation is the rise in the general price level, so it's possible that beef and chicken both go up.

I think consumer spending is typically expressed in nominal terms. So if "holiday shopping" is up 5% over last year but inflation is also up 5%, then we just bought the same amount of stuff and it just cost more.

I also tend to think that most average consumers try to maintain their lifestyle for longer than they should in the face of changing economic conditions. If, and there is an if, we have deterioration, then people will borrow for a while, and some of them will default or go bankrupt. It's possible we'll skate through unscathed, and I hope for that but I don't entirely expect it.

 

[FREE866]

Naturally, people with large savings (retired) will continue to spend and just pay more.

Which was my original point in this thread. And that in the aggregate consumer spending has been robust in spite of inflation. So sure, people think about inflation , but their actions , on the whole, have been unaffected. The article I referenced breaks down the data pretty well.

 

[GenXguy]

Spending is up because the same stuff costs more, so I expect spending to be up by 20% on average compared to a few years ago. To me that's not progress/good.

^^^^^ Yes exactly! Spending is up because everything costs more, not because the consumer is robust or actually purchasing more products.

Please are spending more just to get by and in many cases, getting by with less.

 

[FREE866]

^^^^^ Yes exactly! Spending is up because everything costs more, not because the consumer is robust or actually purchasing more products.

Please are spending more just to get by and in many cases, getting by with less.

Did you read the article?


Spending has increased , even after adjusting for inflation.

 

[Gumby]

The demand curve is downward sloping for most things. People will substitute or reduce consumption when price increases. And, eventually, that causes the price to drop. I can see that at work in my local grocery. Back in 2020, the price of beef tenderloin at the meat counter was usually $21.99/lb. Over the next three years, the regular price relentlessly rose to $26.99. Then, about a year ago, I noticed sales at $25.99. After a while, that became the regular price. Then they started having sales a $23.99. Now that is the regular price. Obviously, when the price hit $26.99, people cut back or substituted cheaper cuts, and the store has been testing the market to see what price level will move their stock of beef tenderloin, just like all merchants will do.

 

[Chuckanut]

I’m not sure if this indicates higher interest rates, general inflation, or people just buying more of the upscaled better optioned vehicles. Or all of these in some combo.

But, the 4th quarter average monthly new car payment hit $739. This is a record high. Source: Edmunds.

 

[JoeWras]

I’m not sure if this indicates higher interest rates, general inflation, or people just buying more of the upscaled better optioned vehicles. Or all of these in some combo.

But, the 4th quarter average monthly new car payment hit $739. This is a record high. Source: Edmunds.

All of the above. CarDealershipGuy has discussed this over the last few months.

BTW, lately, he's focusing more on dealers. After all that's his name. One reason he's focusing on dealers is that they are starting to feel the squeeze and having problems. It is a pretty significant shift in his tone.

This is good news for consumers as we are finally starting to get some power back. Popular brands are still a problem for the end consumer, though.

I was in the market for a used vehicle last year at this time. I've still be monitoring prices even after my purchase. I've seen a very significant drop in used car prices in the last month or so. I think the CPI will continue to benefit from automobile prices. Should continue to be significantly downward, with new car prices flat or down too.

 

[aja8888]

All of the above. Car Dealership Guy has discussed this over the last few months.

BTW, lately, he's focusing more on dealers. After all that's his name. One reason he's focusing on dealers is that they are starting to feel the squeeze and having problems. It is a pretty significant shift in his tone.

This is good news for consumers as we are finally starting to get some power back. Popular brands are still a problem for the end consumer, though.

I was in the market for a used vehicle last year at this time. I've still be monitoring prices even after my purchase. I've seen a very significant drop in used car prices in the last month or so. I think the CPI will continue to benefit from automobile prices. Should continue to be significantly downward, with new car prices flat or down too.

Joe, where do you follow Car Dealership Guy at? I can't locate a website.

Thanks..