How worried are you about inflation?

[GenXguy]

It would be interesting to see the price increase from 1/1/2019 to 1/1/2021 instead. That should smooth out the commodities dip due to Covid.

Jan 1, 2020 is already pre-COVID for all intents and purposes. There wasn't a single known case in the U.S. at that point.

Inflation is really spreading into everything it seems beyond that short list. My latest homeowner's insurance policy went up 12%. My healthcare premiums went up 60% along with a deductible 250% of what it was. Groceries have gone up a lot. Gas has gone a lot. I'm not seeing any relief ahead. And unlike Yellen incorrectly stated, it's not because there was a drop during the pandemic for most things.

Inflation was already higher over the years than the government understated figures, but it's really getting bad now. And there's no where to hide. Sad times ahead.

 

[tmm99]

Yellen added that prices fell substantially last year when the pandemic surged and that she expects to see them move up again as the economy recovers.

"That's a temporary movement in prices," she said. "To get a sustained high inflation like we had in the 1970's, I absolutely don't expect that. We've had a very well anchored inflation expectations, and a Federal Reserve that's learned about how to manage inflation. So, I don't think it's a significant risk and if it materializes, we'll certainly monitor for it, but we have tools to address it," she added.

https://www.cnn.com/2021/03/14/investing/janet-yellen-inflation/index.html

 

[aja8888]

When I started full-time work in 1980 after grad school, the inflation was so bad my megacorp was giving raises every 6 months instead of yearly. There was talk of existing engineers making the same or not much more than new hires, and the corp had to give everyone raises. They had to, in order to retain employees.

That was the effect of 15% inflation. The 30-year mortgage rate was 14% when I bought my home in 1980, and I do not remember if that included the 1/2% mortgage insurance. A year later, the mortgage rate reached 18.63%, according to Federal Reserve data.

Between 1978 and 1981, I was a Plant Manager of a large manufacturing company in Connecticut. I recall giving out 15% to 20% annual pay raises to my supervisors during that time.

In late 1981 I was promoted and relocated to California where I faced the high housing prices. They were double + of what my home in Southbury, CT was valued at. The Company made it worth my while to relocate with monetary benefits on the sale of my current house and the replacement house purchase. None the less, having a new 18% mortgage in Ca was daunting at that time.

What we see now is a Fed-induced recovering economy through the showering of money to prop up the banking system (which CANNOT fail in this economy), and the effects of Covid shutdowns (shortages, etc). The Fed has backed themselves into a corner since the Great Financial Crisis and "QE forever" may be the status quo. Remember when Bernanke said the QE was ending?

It is my feeling that interest rates will have to be increased at some point in the future to slow down the Fed-induced spending and recovery that is keeping the new inflation monster fed. I have no GUESS as to what that will mean for the equity market when that happens, but if interest rates get high enough, I will be feeding on CD's.

DW and I are on the dark side of 70's age group (I'm close to 78, she's 76), and we have careful with our retirement funds that remain. Having the house paid for is a blessing and our lifestyle is one with minimal needs. So we will be OK. We are more worried about health issues at our ages as we are seeing friends and family members passing away on a frequent basis.

On this last Easter Sunday, my SIL's husband, who was my best friend for nearly 30 years, passed away from kidney failure in a Sacramento Ca hospital. We spoke by phone two days prior to his passing and he said he wished he and I could play golf together again like the many times we did in the past. Not once during our hour long call did he mention the millions of dollars he had in his retirement accounts or what he wanted to do with his good fortune.

 

[audreyh1]

I think the big factors were the Vietnam war and the OPEC oil embargo. These caused poor productivity, and prices went up.

Wage inflation was also a big driver as many strong unions etc. had COLA adjustments built into wage increases and I suppose the labor force availability was tight enough to support the demands of increased wages. Transitions to two earner households and globalization took care of that in subsequent decades.

 

[24601NoMore]

It would be interesting to see the price increase from 1/1/2019 to 1/1/2021 instead. That should smooth out the commodities dip due to Covid.

Not sure I follow..these are increases since Jan 1, 2020..prior to COVID.

Sure, things dipped - in some cases hugely - during COVID. But it appears to be a good measure of inflation since the period prior to COVID.

 

[sengsational]

Stocks tend to have high total returns regardless of the inflationary environment, but their prices are volatile.

That's from the Schwab article. But for someone with a little cash buffer, but mostly equities, I'd say "and" instead of "but" because volatility is an opportunity.

 

[MichaelB]

Wage inflation was also a big driver as many strong unions etc. had COLA adjustments built into wage increases and I suppose the labor force availability was tight enough to support the demands of increased wages. Transitions to two earner households and globalization took care of that in subsequent decades.

Exactly. Chronic inflation, the kind the Fed policy makers fear, isn't consumer price change, it’s when across the economy prices rise for everything, including wages / labor, so there’s no real gain. Once wage and price increases begin feeding into each other inflation becomes chronic and is very difficult to stop without a major contraction or Fed reset a la Volker ‘79.

If producer and consumer prices rise but wages don’t, a recession is almost inevitable, as purchasing power has fallen.

If the current surge in some prices holds indefinitely, we will have either a serious inflation problem and/or a collapse in demand. The Fed view is these price jumps, especially in commodities like lumber, will fade quickly once supply kicks in. Greenspan described those price increases as “once offs”, meaning they did not contribute to sustained inflation.

 

[HadEnuff]

I am concerned. I have taken what I think and hope will be the appropriate steps for my situation, but who really knows. Of course, one reason I am concerned about it is that I don't have a lot of other things to concern me...
Kids are making their own way, I don't work for a living so I don't have to be concerned about all of those things that once concerned me regarding my job...

I think my brain has a little corner, the Corner of Concern, and it needs to be always filled with something.
Meditation helps, to the degree that I do it, although I'm not very good at it. But it helps.

 

[MRG]

You all need to stop teasing me with late 70s early 80s memories. I can only stand so many great memories.

I was working at a sawmill and at that time lumber was in a slump, we didn't get raises for a few years. The hourly people were doubly screwed, no raises and laid off. We had a house we couldn't afford with a special mortgage that's payments rose annually because you should have gotten a raise. Food was a concern.

I started going to night school back then and got a job programming. I had no idea past worrying about being hungry how life changing that decision would be. I guess we're in a better place today.

 

[Masquernom]

Not sure I follow..these are increases since Jan 1, 2020..prior to COVID.

Sure, things dipped - in some cases hugely - during COVID. But it appears to be a good measure of inflation since the period prior to COVID.

Ooops, I read the dates wrong. Thought is was 5/6/2020.

 

[jollystomper]

Over time, asset owners should be fine. Those inflated dollars will flow through corporations. Those higher real estate prices will flow through REITs who will also capture rents. Bonds will take a drubbing but provided the Fed does let rates rise, those bonds will roll over and be re-invested at higher rates. Even cash positions will be somewhat protected if rate rises flow through to banking products.

As always, the people who will get really pounded are wage earners living paycheck to paycheck.

I agree with this. I have more than enough assets that inflation really will not impact me, other than maybe deciding to buy 2 steaks instead of 3, or a compact instead of a sedan. The hourly wage earners without savings are most at risk.

Even back in 1979, when I started working, inflation did not bother me. I had a relatively good paying job at $16,500 out of college, with my apartment rent a bit over $300/month, at a time when the unemployment rate was 10%. Gas was still less than a dollar a gallon. I had flexibility to deal with inflation. I more remember the ads for money market funds - which I knew little about then - offering 15-18% interest.

A lot of the impact seems to be more on "wants" than "needs". Interestingly I do not see the impact yet on fast food. Given that it is such a large part of the American diet, If that happens, things will be interesting .

 

[ER Eddie]

I saw something on the news about it, and I got a little worried. But honestly, I've got a lot of cushion in my retirement plan, and I'll be okay. It's going to be much harder on people who are on modest or fixed incomes.

It would've been nice to continue to enjoy robust economic times, but with all the government spending through the years, all that fake stimulus, the consequences had to set in eventually.

 

[RAE]

I agree with this. I have more than enough assets that inflation really will not impact me, other than maybe deciding to buy 2 steaks instead of 3, or a compact instead of a sedan. The hourly wage earners without savings are most at risk.

Yep, same here. If were much younger, and still working, I'd probably be more concerned. But at this point, I feel like maintaining my health is much more important than worrying about how I might have to spend a few more bucks on food or gas, or whatever. Now, if I was thinking of buying or building a new home right now, I'd be more concerned also, but thankfully we are not....

 

[homestead]

Had a friend in the 70's who had lived in Hungry during mid 1940's of their hyperinflation. The govt. solution was to print more money. At the peak it was 350% inflation/day. He said the people switched to razor blades for currency since they would hold their value.

 

[Crewer]

While our personal inflation rate will not be high enough to really impact us, our kids are in their 30s and just into the "family-formation" stage and I think they will be sorely impacted. Surely there will be inflation to "inflate away" the debt.

DS is in the process of buying a home (yes, there were multiple offers over list but they got it with a larger down payment and this is in the Cleveland area, which has never been a hotbed for real estate). He's talking about paying extra to pay it off early but with a ~3% mortgage I counseled him to sock away savings instead. I'm glad he is so debt-adverse. He has also considered that they may be buying at the top of the bubble but they have to live somewhere.

I think our first mortgage rate was 14% or maybe even higher.

 

[marko]

Not worried about something I cannot change. Not concerned, not bothered, not staying up at night.

There are many things one cannot change but still need to be vigilant about. I cannot change the weather but it is good to know that a hurricane/tornado/two feet of snow is coming my way so that I can prepare and mitigate the outcome.

"Worried" might be too strong a word, but I believe we need to be aware of it and concerned of the potential havoc it could wreak upon those living on investment income and make changes as we see the skies darkening.

Still, back in the 2008 time-frame everyone was worried about inflation as the gov't pumped billions into the economy...it never happened thanks to good Fed management (IMO); we can hope for the same but as they say "hope is not a strategy".

 

[ER Eddie]

There are many things one cannot change but still need to be vigilant about. I cannot change the weather but it is good to know that a hurricane/tornado/two feet of snow is coming my way so that I can prepare and mitigate the outcome.

"Worried" might be too strong a word, but I believe we need to be aware of it and concerned of the potential havoc it could wreak upon those living on investment income and make changes as we see the skies darkening.

But what can we do about it, though? I'm not being snarky, I'm genuinely asking. Let's say we're looking at a period of elevated inflation. What do we actually do about that, as individuals?

 

[Fermion]

I don't think there is a lot you can do. You don't know the time frame even though it "looks" like inflation is right on the horizon or already here.

We also do not know what the government might do. If they were predictable, it might be easier to place investments.

Covered calls, something favored by NW and a few others, might be the correct play. The premium is pretty good right now for selling calls because of the hype and money in the market (people looking to get rich quick).

I have been grabbing a few covered call plays, just to nick 5% here or there over a short (3 month) time period while still participating in a potential 10% upside.

 

[sengsational]

There are many things one cannot change but still need to be vigilant about. I cannot change the weather but it is good to know that a hurricane/tornado/two feet of snow is coming my way so that I can prepare and mitigate the outcome.

Good point, but lumping tactical and strategic moves together muddles things; preparing for inflation is more slowly moving than many other threats...it doesn't hit all at once like a storm. It's more like a pandemic...you know it's coming, don't want to think about it, not a lot of agreement about how best to prepare, and afterwards, you have 3 liters of hand sanitizer that you don't need

 

[marko]

But what can we do about it, though? I'm not being snarky, I'm genuinely asking. Let's say we're looking at a period of elevated inflation rates. What do we actually do about that, as individuals?

Good question but no real answers.

As a preparation, the first thing I'd do is see what personal 'deflation' items might be in our future.

For me, DW starts Medicare in 2 years...a $14K annual 'deflator'. In a pinch we could dump the boat, saving another $10K+ per year. So those two things alone would make up for increased prices in other things. If things got really crazy I might also re-consider our two luxury car leases and move to more reasonable cars once the leases were up.

We might also re-arrange our portfolio to increase income vs growth (?) shelter some money in gold (?); buy stocks that are less inflation sensitive (?).

OTOH, a few months ago I wondered on this forum if stocks increase in value with inflation and the responses were fairly to the positive; so maybe high inflation would help increase the price of stocks along with it making it a wash.

Many pensions are not inflation adjusted so a drive to increase passive income or finding what expenses could be reduced could be prudent to make up the difference.

 

[Fermion]

Good point, but lumping tactical and strategic moves together muddles things; preparing for inflation is more slowly moving than many other threats...it doesn't hit all at once like a storm. It's more like a pandemic...you know it's coming, don't want to think about it, not a lot of agreement about how best to prepare, and afterwards, you have 3 liters of hand sanitizer that you don't need

^this lol

Although the price of copper soaring as it is ($4.72 this morning) has me thinking this is a bit more than a rain shower coming.

I still don't want to think about it though. Where is that nice soft sand...

 

[marko]

^this lol

Although the price of copper soaring as it is ($4.72 this morning) has me thinking this is a bit more than a rain shower coming.

I still don't want to think about it though. Where is that nice soft sand...

...or is this another head-fake doom and gloom that never materializes?

Along with many others, I was absolutely certain that the money we had pumped into the economy in 2008 was going to inflate us to the moon but it never happened.

 

[NW-Bound]

Covered calls, something favored by NW and a few others, might be the correct play. The premium is pretty good right now for selling calls because of the hype and money in the market (people looking to get rich quick)...

It's not easy.

While I made a lot of money selling out-of-the-money calls for semiconductors, all tech stocks have been declining and the call premium does not make up for the drop in the stock.

I believe in semiconductor stocks, and not the vaporware stocks, and would sell put options to buy them even lower, but I already have too much of these stocks. So, I couldn't. Pigs get slaughtered.

And then, while I generally refrain from selling options on commodity stocks like mining, industrial metals, agricultural products, because I feel they have a lot more to run, I did a few and ended up losing the fast climbing stocks.

The problem with selling calls is that you may end up losing all your good stocks, and keeping all your losers. It has to be done in moderation, like adding salt to a dish.

 

[Scuba]

Not surprised many poster here commenting "I'm not worried". But inflation is what keeps most working class Americans in poverty generation after generation.

McD Hashbrown that used to cost $0.50 last year is now $1.99
McD Apple Pie that was $0.69 last year is now $1.29
Organic milk that was $5.99/g is now $7.99/g
A house that was $350k last year is now $500k
You could buy a decent new car around $17-18k. Now Dealers (once they ask you to come in) will not have anything under $22-$25k that is decent.

It hurts people on fixed income the most. It's sad. But yeah.. there is no inflation. Just keep believing propaganda.

Exactly! The CPI and other “inflation indicators” leave out a lot of categories, especially what we seem to consume. Our mortgage and gasoline are about the only things I can think of that went down the last couple of years. Groceries, eating out, travel, and healthcare are all up double digits. We used to be able to have a casual meal out at a nice but not fancy restaurant for $60-80 including a couple of drinks. Now even a casual meal out with water or soda costs $50-$70, usually over $100 if we have a drink or two. Our health insurance premium is over double what it was 4 years ago, and our grocery spending has gone from around $700/month to $900-$1K for two people.

 

[Scuba]

I think it's widely known that most economists lurk on this forum to harvest information they later present as their own. If forum members don't "come up with a number," then economists won't have anything to say. Come on ExFlyBoy5, get with the program and contribute!

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