Latest Inflation Data and report

[luckydude]

I'm pretty much screwed with 20%/yr inflation if the stock market doesn't keep up. That will kill our portfolio in less than a decade

A 20%/year inflation would pretty much kill most people's portfolio in short order. Just because it has never happened historically doesn't mean it won't happen in the future, especially in today's uncertain economic, political and international climates. That's why it's advisable to have some form of hedge (i.e. RE/gold/alternatives) in place above and beyond the traditional 60/40 portfolio.

 

[Mulligan]

Could fairly easily be double digit inflation

1) Be a renter - rents are up 15% y/y nationally and up 30% in some areas

2) Not live in an area where property taxes are limited each year - most of my rentals went up 15% last year if you own

3) Electricity is up 11% y/y on average

4) Gas is up 40%

5) Maintenace on house is up massively - not sure in CPI but my repairs this last year were at least 40% higher than the year before, some double

6) Food is up 7.5% but within that 7.5% could be much, much higher depending on what you normally buy (eg: beef is up 16% y/y)

7) New and used vehicle prices are up 13% and 40% respectively.

8) Hotel prices are up 20%



Now your INCOME might be high enough that the above may not matter as much (like for myself currently) but if you make the typical $70k household income in the US, the above will hurt badly.

Its definitely local. My cola was 5% but that more than covered my increased costs, as my expenses havent went up $500 a month.
Gas and I suspect food for me hit your numbers, but gas is a largely immaterial cost. Our utilities have been more muted but we have an integrated low cost utility that produces and distributes the power.
My housing went down because I refinanced last year a 100 bps lower. Car costs went down too, as I traded in my 3 year old car and they gave me several grand more than I paid for it, so my car payment dropped $125 a month with 0% financing. Insurance oddly enough went down also with the new car.
Fortunately I have not had any need for home maintenance as I bet that has shot through the roof. I did have to recently buy a washer and dryer in past few weeks but I used my free CC cash back money earned from last year that paid for it all. I havent bought a washer or dryer in 20 years so I dont know how much they went up recently. I bought the absolute cheapest washer and dryer model made in 1998 and the damn things were still working without a bit of maintenance. So largely that was a discretionary purchase since they were still working fine.
I would say for me the two most noticeable cost increases I have observed for me is gasoline and restaurant menu prices. Everything else hasnt really been noticeable… Just remembered my damn Nicotine lozenges I buy on Ebay have shot up $10 so that is 20% increase. That just happened all at once too.

 

[cyber888]

I heard the Biden admin is now focusing on solving the supply chain problems and bottlenecks. The rise of nationalism vs globalism, trying to be less reliant on China, the 25% tariffs on Chinese goods are now reflected on the supply chain problem that the pandemic caused. We use to get a lot of goods from China and Asia. Plus we got the Ukraine/Russia thingy .. causing gas prices to go up.

This inflation can't be solved by a monetary policy adjustment. It is a structural supply shortage problem .. and must be corrected by looking at the supply chain.

 

[Koolau]

As older folks (with a relatively small home) we just don't buy much "stuff" any more. So, we buy mostly every-day consumables such as food, electricity, gasoline, restaurant meals, appliances (replacement) etc.

I've noticed that these items are all up - way up. I haven't done a close check but I think our food is up nearly 20% vs a year ago. Restaurant meals are up 25% or so (and we tip more). Electricity is up 15% or so (without rates going up - and they are going to go up I hear - our "fuel adjustment" is the culprit so far.) Gasoline is up over $1/gallon year over year. We bought a new washer/dryer combo and it's up over 100% from the one we bought at our last place about 13 years ago.

So I guess "all inflation is local" would be the watchword. Realistically such increases don't affect us much as we have "enough" in savings and monthly income. Still, it's a fearful flashback to the 70s/80s. Those were frightening times - and I was still w*rking, so getting rapid raises. Not so much anymore. Our only COLA is SS and that goes to MC. YMMV.

 

[JoeWras]

A large portion of the "shelter" component of the inflation numbers are based on Owner Equivalent Rent. (OER)

This number tends to move slow because it takes time for people who take the survey to wake up and realize they could charge more rent for the home they own. The wake up call usually happens when they get an insurance bill, tax re-evaluation, go looking for a new home, or just get engaged with the news and market.

We all saw what happened to real estate in 2021. This will take time to wind out through the BLS numbers in 2022 and possibly beyond. Shelter is a HUGE component of the official numbers, so you can be sure the official numbers won't crater this year.

 

[Magus]

A large portion of the "shelter" component of the inflation numbers are based on Owner Equivalent Rent. (OER)

This number tends to move slow because it takes time for people who take the survey to wake up and realize they could charge more rent for the home they own. The wake up call usually happens when they get an insurance bill, tax re-evaluation, go looking for a new home, or just get engaged with the news and market.

We all saw what happened to real estate in 2021. This will take time to wind out through the BLS numbers in 2022 and possibly beyond. Shelter is a HUGE component of the official numbers, so you can be sure the official numbers won't crater this year.

Yup - if you moved the total shelter component to +15% increase y/y like it actually is nationally (33% of the index )instead of the 4.4% they currently have (which is laughable), the CPI index would be 3.5% higher, or 11% currently.

 

[JoeWras]

Yup - if you moved the total shelter component to +15% increase y/y like it actually is nationally (33% of the index )instead of the 4.4% they currently have (which is laughable), the CPI index would be 3.5% higher, or 11% currently.

I think it is important for people to know that the CPI underwent a very significant change in 1983 regarding this OER topic. (Source: BLS #1) If we were under pre-1983 methods of reporting CPI, the index would indeed by much higher. I make no comment on this change, it simply exists and any commentary probably gets political.

It is also important for people to understand how OER comes about. It is from a sample of homes that are "on the sample clock" for 6 years. They get asked one simple question 2 times per year. (Source: BLS #2, and the deeper BLS #3)

“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

It is that simple. The gut reaction is to just answer what you did last time. It usually takes a "wake up" event to change the answer, such as a rise in taxes, insurance, maintenance, house-hunting, etc.

DW and I were in a BLS wage and household survey for a 2 year period about 25 years ago. It was fascinating. We first got interviewed in person, at our home. Then each month Wanda would call us and ask a series of questions, and if there were changes. I really think BLS does the best they can, despite those of us being surveyed being perhaps ambivalent. I think I can remember saying to DW: "If Wanda calls, just tell her no changes for me. I'm busy!"

There is plenty to read about what people think about OER. The upshot is that it ultimately reflects the cost of shelter, however, it very smoothly gets there. We're talking years during price-shock times.

I find it ironic that OER is so casual, yet collectors of data get down to weighing items and doing very careful data collection (see shrinkflation mentioned earlier in thread). It seems to be a weird disparity in methods.

Source for data collection methods: BLS #4 question 11

During each call or visit, the data collector collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, a 64-ounce container has been replaced by a 59-ounce container) of the good or service since the last time prices were collected, a new item is selected or the quality change in the current item is recorded.

 

[GenXguy]

the 25% tariffs on Chinese goods are now reflected on the supply chain problem that the pandemic caused.

Those would be reflected in the prices whether or not there was a supply chain issue. Prices get passed on to consumers.

We use to get a lot of goods from China and Asia.

Use to get a lot? We still do! And it's increasing. The trade deficit was a record last year, and imports from China increased 16.5%.

 

[ejman]

I have a hard time relating to the official CPI numbers based on my actual experiences. My"normal" expenditure rate pre Covid (I track expenses to the penny with Quicken) is in the $70k per year range. Post Covid expenses were $61K in 2020 and $57K in 2021. We have been basically homebound the last 2 years in SW rural Oregon with just a couple of escapades to the coast for a few days (I'm immune suppressed) so for us, there really has been no inflation so far. Maybe we'll notice more once the pestilence passes and we start going out but so far for basic necessities no effect.

 

[Fermion]

I have a hard time relating to the official CPI numbers based on my actual experiences. My"normal" expenditure rate pre Covid (I track expenses to the penny with Quicken) is in the $70k per year range. Post Covid expenses were $61K in 2020 and $57K in 2021. We have been basically homebound the last 2 years in SW rural Oregon with just a couple of escapades to the coast for a few days (I'm immune suppressed) so for us, there really has been no inflation so far. Maybe we'll notice more once the pestilence passes and we start going out but so far for basic necessities no effect.

I mean, you don't eat hamburgers? Ground beef is up 20% or more since pre-Covid. Anyone buying a car, buying or building a house, doing remodels, is seeing inflation for sure.

 

[JoeWras]

I mean, you don't eat hamburgers? Ground beef is up 20% or more since pre-Covid. Anyone buying a car, buying or building a house, doing remodels, is seeing inflation for sure.

Add buying gasoline or going out to eat, even fast or casual food.

I believe ejman because ejman is not getting out so:
- No need to buy or maintain a vehicle
- No eating out
- No gasoline

Our 2020 and 2021 expenses were down also, even groceries. DW has put a lot of effort into buying frugally.

However, starting about October, I can start seeing the uptick on my Quicken reports. 2022 should reflect noticeable change.

 

[ejman]

I mean, you don't eat hamburgers? Ground beef is up 20% or more since pre-Covid. Anyone buying a car, buying or building a house, doing remodels, is seeing inflation for sure.

You nailed it Fermion, My wife is an excellent shopper, we don't eat hamburger but she gets petite sirloin for $3.99 to $4.99 a lb, New York strip steaks for $5.99 lb, Boneless chicken breasts for $1.99 lb, pork loin for $1.99 lb and so on. Our 2010 Truck and 2016 car are doing just fine, no replacements needed at this time and we are not building a house. MY point was that the rate of inflation is a very personal thing and to a great extent can be managed, particularly for early retirees. We can pick where we live, where and how we shop. FIRE is freedom, even to some extent from inflation.

 

[Fermion]

To me, frugal grocery shopping is not the same as seeing no inflation.

So the prime ground beef 90% lean you used to buy for $5 a pound is $7 a pound, and you switch to regular 85% lean that has gone from $4 to $5.

No inflation for you since your grocery bill stays the same.

But not really.

 

[Fermion]

You nailed it Fermion, My wife is an excellent shopper, we don't eat hamburger but she gets petite sirloin for $3.99 to $4.99 a lb, New York strip steaks for $5.99 lb, Boneless chicken breasts for $1.99 lb, pork loin for $1.99 lb and so on. Our 2010 Truck and 2016 car are doing just fine, no replacements needed at this time and we are not building a house. MY point was that the rate of inflation is a very personal thing and to a great extent can be managed, particularly for early retirees. We can pick where we live, where and how we shop. FIRE is freedom, even to some extent from inflation.

Sure, it is a personal thing I guess but you can still see it even if you don't partake in it. Perhaps your wife was not as frugal 3 years ago and could have been buying sirloin for $2.99 and chicken breasts at $1.50 if she had spent time finding the best deals possible. I know there are people who clip coupons and can come away from a grocery store with a full cart purchased for like $10.

If I had headed into the Alaska back country in 1978 with a backpack and axe, lived off the land and come back in 1984 or so, assuming I survived, maybe I would have said there was no inflation during that time.

 

[JoeWras]

You nailed it Fermion, My wife is an excellent shopper, we don't eat hamburger but she gets petite sirloin for $3.99 to $4.99 a lb, New York strip steaks for $5.99 lb, Boneless chicken breasts for $1.99 lb, pork loin for $1.99 lb and so on. Our 2010 Truck and 2016 car are doing just fine, no replacements needed at this time and we are not building a house. MY point was that the rate of inflation is a very personal thing and to a great extent can be managed, particularly for early retirees. We can pick where we live, where and how we shop. FIRE is freedom, even to some extent from inflation.

It can be managed, but only for so long.

I think Midpack's story of being required to buy a new car due to a total loss is a good example. DW and I have 11 and 12 year old cars and have no need to update anytime soon. But you never know: a simple accident can cause a total loss. Suddenly, one is thrust into making an unexpected purchase at a very bad time.

 

[Magus]

I have a hard time relating to the official CPI numbers based on my actual experiences. My"normal" expenditure rate pre Covid (I track expenses to the penny with Quicken) is in the $70k per year range. Post Covid expenses were $61K in 2020 and $57K in 2021. We have been basically homebound the last 2 years in SW rural Oregon with just a couple of escapades to the coast for a few days (I'm immune suppressed) so for us, there really has been no inflation so far. Maybe we'll notice more once the pestilence passes and we start going out but so far for basic necessities no effect.

Maybe compare some apples to apples things like electricity, the cost of ground beef or chicken breasts, or gas, insurance, property taxes, etc. a lot of retirees obviously cut back on travel, restaurants and experiences in the pandemic so it can distort your perception of inflation.

 

[Chuckanut]

I am simply amazed at how blasé people seem to be about 7%+ inflation. The rule of 72 tells me that in a mere 10 years, my dollars will lose half their value. Not so good. Yet, there seems to be no outrage, no concern, not much of anything.

 

[Fermion]

I am simply amazed at how blasé people seem to be about 7%+ inflation. The rule of 72 tells me that in a mere 10 years, my dollars will lose half their value. Not so good. Yet, there seems to be no outrage, no concern, not much of anything.

You haven't been listening to me then lol, I am scared and concerned. As far as outrage, I don't really have a specific target to rage against...I am not going to blame the "evil" corporations as most of our politicians do because they are just out to get me a return on my investment.

But yeah, when I look at the price of windows, wiring, lumber for our house construction, I get scared and concerned for sure.

 

[ejman]

Maybe compare some apples to apples things like electricity, the cost of ground beef or chicken breasts, or gas, insurance, property taxes, etc. a lot of retirees obviously cut back on travel, restaurants and experiences in the pandemic so it can distort your perception of inflation.

I've tried to do that with everyday expenses that relate to my life here. Example electricity (our home is all electric), February 2020 - $286, Feb 2021 $247, Feb 2022 $242. Property Taxes 2019 $1,468, 2020 $1,528, 2021 $1,466. I don't track specific items within the grocery bill which again has remained pretty level but probably not representative on account of my wife's excellent shopping skills. Again, individual rates of inflation are so different from CPI I find it very difficult to relate to that official number. I would imagine in an urban setting with someone driving to work all the time and renting, and eating out all the time and having their kids in day care the CPI number is probably way understated. But I can only report what I experience, not what some one else experiences.

 

[aja8888]

You haven't been listening to me then lol, I am scared and concerned. As far as outrage, I don't really have a specific target to rage against...I am not going to blame the "evil" corporations as most of our politicians do because they are just out to get me a return on my investment.

But yeah, when I look at the price of windows, wiring, lumber for our house construction, I get scared and concerned for sure.

Scariest part of high inflation is the recession that usually follows and with loss of value in hard assets and the stock market. But we know how to prepare for this opportunity, right?

 

[Fermion]

Scariest part of high inflation is the recession that usually follows and with loss of value in hard assets and the stock market. But we know how to prepare for this opportunity, right?

No, lol. bonds are paying zilch.

How do we prepare for this?

 

[DjBrown]

I am simply amazed at how blasé people seem to be about 7%+ inflation. The rule of 72 tells me that in a mere 10 years, my dollars will lose half their value. Not so good. Yet, there seems to be no outrage, no concern, not much of anything.

So we will also get rid of 1/2 of our national debt .
We kinda did same thing after WW2 when our national debt was even higher.

 

[aja8888]

No, lol. bonds are paying zilch.

How do we prepare for this?

LOL! I wish I had the answers. But......I was working for ARCO in Los Angeles in 1981 and once I refinanced my 18% mortgage, I had enough ready cash to buy into the market before it took off. So having cash may not be such a bad idea when the FED raises rates and destroys the market.

Also, that was a good time to buy real estate. I bought in California in 1980 and that was just before things stated up after mortgage rates killed the market.

In 2010, when RE was tanked, in Texas here, I was going crazy bidding on bank repos, foreclosures, etc and landed a nice 3 year old 2,000 SF brick home for $64/SF.

So the message that worked the LAST TIME, was to be armed with cash when the recession is in full bloom.

Yeah, bonds are dead money and have been for a while.

 

[Chuckanut]

Scariest part of high inflation is the recession that usually follows and with loss of value in hard assets and the stock market. But we know how to prepare for this opportunity, right?

above emphasis added...

Yes. Keep some cash available, even if it means earning 0.5% in a 7% inflation environment.

 

[DjBrown]

LOL! I wish I had the answers. But......I was working for ARCO in Los Angeles in 1981 and once I refinanced my 18% mortgage, I had enough ready cash to buy into the market before it took off. So having cash may not be such a bad idea when the FED raises rates and destroys the market.

High inflation though is a game changer compared to previous recession. (Since 1982).

Why would values of good companies that can easily raise prices go down when cash is rapidly losing it's value? Same applies to housing market.