Latest Inflation Numbers and Discussion

[Montecfo]

I plugged the last 10 year period through April 2023 into the inflation calculator, and it shows inflation was 30% over the time span. That is most certainly NOT low inflation. And that's even based on the government figures, which obviously are setup to give lower figures than reality, which means inflation is actually even worse than that figure, which explains why my bills go up yearly more than the government inflation figures.

Well according to your math that is under 3% per year. Pretty average.

I think you may want to look at history and re-calibrate.

 

[audreyh1]

I plugged the last 10 year period through April 2023 into the inflation calculator, and it shows inflation was 30% over the time span. That is most certainly NOT low inflation. And that's even based on the government figures, which obviously are setup to give lower figures than reality, which means inflation is actually even worse than that figure, which explains why my bills go up yearly more than the government inflation figures.

Well according to your math that is under 3% per year. Pretty average.

I think you may want to look at history and re-calibrate.

30.46% over 10 years = 2.7% per year.

 

[Helen]

Yeah, my mom and dad went through the depression. Their entire world was colored by it. They each had their own little vestiges of fear left over. My dad for instance always kept lots of canned goods on hand as well as hiding silver (US coins.)

My Dad was 50 when I was born. He graduated from an all engineering college in 1930. He was one of three who got jobs that year. He said no one got jobs in 1931. He was very frugal, but not necessarily cheap.

I remember from my Econ classes, that there aren't many tools to combat deflation and the best way to deal with it is to prevent it.

 

[Montecfo]

30.46% over 10 years = 2.7% per year.

Thanks for the exact figure. I think I would take 2.7% average for next decade.

 

[audreyh1]

Useful view of average annual inflation by decade:

from https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp

 

[GenXguy]

30.46% over 10 years = 2.7% per year.

Yes, I had calculated just slightly less than that, which is still very high for 10 years average straight! The target is 2%. We would need inflation near 0 for years to offset the difference. And that's based on the government figures which are setup to always downplay how bad inflation really is. Most people know it's really a lot higher than that, so it's very concerning for most families.

New bad news: Inflation reported to still be running very hot, about 250% of the target inflation rate and higher than expected:

https://www.cnbc.com/2023/05/26/inf...r-ago-according-to-key-gauge-for-the-fed.html

And I'm actually seeing even more inflation than that in the real world along with most people. The fed needs to keep up the good fight because they were too late to the game and are still losing it while supposedly trying to target inflation at 2% annually.

 

[Chuckanut]

Thanks for the exact figure. I think I would take 2.7% average for next decade.

That doubles prices every 27 years. A person taking FIRE in their 50’s would need to consider that.

 

[Chuckanut]

Core inflation in April was 4.7% for the twelve months ending in April. That’s up compared to March, Not so good.

4.7% takes quite a bit out of those 5.4% CDs many people here picked up earlier this year. After taxes, maybe there is some gain in real dollars. Maybe. Still it’s better than last year.

I need to sharpen my bargaining skills, especially with big ticket purchases.

 

[Montecfo]

That doubles prices every 27 years. A person taking FIRE in their 50’s would need to consider that.

Sure. But inflation is nothing new as the chart posted by audreyh1 show. In fact, 2.7% is well below the long-term average.

And as we know, markets have beaten those figures handily over time, generating real returns.

Anyone who thinks sub-3% inflation is stunningly high is not a student of history.

And anyone whose retirement depends on 2% inflation is probably taking a very large risk.

 

[MichaelB]

Sure. But inflation is nothing new as the chart posted by audreyh1 show. In fact, 2.7% is well below the long-term average.

And as we know, markets have beaten those figures handily over time, generating real returns.

Anyone who thinks sub-3% inflation is stunningly high is not a student of history.

And anyone whose retirement depends on 2% inflation is probably taking a very large risk.

+1

This is why it is so important to have a diversified portfolio and a significant allocation to equities.

 

[Piper20]

Levi 505 from Amazon Nov 2021 $28.99. Today $69.50. Opted for the Amazon branded for $23.80.

The 505’s dropped to $50 2 weeks ago so I bought a pair. Yesterday they were $24.99. Bought another pair, couldn’t resist. Good for a few years now.

 

[GenXguy]

That doubles prices every 27 years. A person taking FIRE in their 50’s would need to consider that.

I think a yearly 2.7% increase would make it closer to 26 years. But I agree, both are terrible.

Core inflation in April was 4.7% for the twelve months ending in April. That’s up compared to March, Not so good.

4.7% takes quite a bit out of those 5.4% CDs many people here picked up earlier this year. After taxes, maybe there is some gain in real dollars.

I got several new CDs back in March at the best rates I could for non-callable CDs in, and they averaged about 5%. After taxes, my return is about 3.6%. That's completely lost and then some to high inflation. But even worse, a year ago when inflation was even higher, new CDs were yielding a lot less than they are now, so those CDs lost a lot of buying power that people will never make up for. And equities are down, too.

4.7% is between 200% and 250% of the Fed's target of 2%. I'm not sure why some others are downplaying that this is very significant inflation, even using the government figures which make the inflation look less worse than it actually is, and differently than it had been calculated in the more distant past. Someone with a large stash like most on this forum can probably weather it by spending a lot more for everything they buy, but that ignores the fact that most families are hurting or otherwise cutting back due to the massive inflation we've been having and continue to have. I've read most future retirees are concerned about this high inflation affecting their retirements as well. I've even delayed my retirement at least a couple years due to high inflation, not because I hadn't saved enough to make it through retirement, but because I want to maintain a similar level of discretionary spending buying power after such high inflation, which continues. Many people won't be so fortunate to overcome as easily as me, not that it's easy to have to work a couple more years. And if it continues, I might have to work even longer to make up for that lost buying power.

As for past inflation, people need to understand all those past price increases didn't go away when inflation dropped to 3%, they just didn't go up as quickly from there, and all this recent inflation is on TOP of all of the past price increases due to past inflation. It's piling on. We need a lot of years of near 0% inflation to make up for what we've had recently to bring the decade long average to the 2% target rate.

 

[audreyh1]

Since my retirement month 8/1999, inflation is up 81.55%.

23 years 8 months

 

[MichaelB]

I'm not sure why some others are downplaying that this is very significant inflation, even using the government figures which make the inflation look less worse than it actually is, and differently than it had been calculated in the more distant past. Someone with a large stash like most on this forum can probably weather it by spending a lot more for everything they buy, but that ignores the fact that most families are hurting or otherwise cutting back due to the massive inflation we've been having and continue to have. I've read most future retirees are concerned about this high inflation affecting their retirements as well. I've even delayed my retirement at least a couple years due to high inflation, not because I hadn't saved enough to make it through retirement, but because I want to maintain a similar level of discretionary spending buying power after such high inflation, which continues. Many people won't be so fortunate to overcome as easily as me, not that it's easy to have to work a couple more years. And if it continues, I might have to work even longer to make up for that lost buying power.

As for past inflation, people need to understand all those past price increases didn't go away when inflation dropped to 3%, they just didn't go up as quickly from there, and all this recent inflation is on TOP of all of the past price increases due to past inflation. It's piling on. We need a lot of years of near 0% inflation to make up for what we've had recently to bring the decade long average to the 2% target rate.

Everyone here understands inflation, it affects us all. I don’t see anyone “downplaying it” but I do see members trying to keep the right perspective when discussing it. It is one of many financial challenges we will face over our retirement, and it’s not the most serious. For example, the market crashes of ‘02 and ‘08 had a much greater destructive impact on portfolio purchasing power, yet here we are.

It’s not reasonable to expect a 30 year retirement without financial or economic challenges. That’s why we model with tools like FIRECalc. A retirement plan needs to be able to withstand financial and economic stress and adversity, and a portfolio needs to have sufficient diversification to perform moderately well across a variety of economic conditions and scenarios.

 

[cyber888]

That's not necessarily deflation. I just bought 4 12-packs of Diet Sprite with a buy 2 get 2 free deal. But since Harris Teeter has decided that a 12-pack costs $9.99, it worked out to $5/pack. That's a discount, but not either deflation or a deal.



I've always been both annoyed and aware when prices are hiked to make a deal look better.

No this is a real deflation.
Dishwashers have cost $599 for several months now + $200 for installation + $40 to haul away. With tax, it totals to $900+
We got the brand new Maytag dishwasher for only $399, with tax $429 including installation + haul away. It’s real. Price really went down. Same with the Maytag washing machine. All brand new, all professionally installed, all with full warranty.

 

[REWahoo]

No this is a real deflation.
Dishwashers have cost $599 for several months now + $200 for installation + $40 to haul away. With tax, it totals to $900+
We got the brand new Maytag dishwasher for only $399, with tax $429 including installation + haul away. It’s real. Price really went down. Same with the Maytag washing machine. All brand new, all professionally installed, all with full warranty.

Unless that price and the inclusion of those services are now the new normal going forward, what you experienced wasn't deflation, it was a sale.

 

[Ultrac]

I don’t know what to make of inflation.

Unfortunately, there is conflicting data that can be used to support the full range of Fed actions from cut to hold to raise.

Looking at CPI the picture looks good. Annual inflation peaked in June 2022 at 9.1% and has since fallen to 4.9%. In fact, as the months of June and July of 2022 had such high inflation if we just look at inflation over the last 10 months and annualize it, we find that inflation is only 2.9%.

I believe this has led many commentators to urge the Fed to cut rates or at least pause.

However, if we take the 6-month CPI and annualize it, it is currently 3.6% having increased from only 0.3% 4 months ago.

So, according to the CPI, inflation has fallen by almost half from its peak but seems to have accelerated again in the last few months. However, the 12-month inflation reported in the next 2 months is almost certain to fall as the June and July 2022 data rolls off. It wouldn’t surprise me if the annualized CPI inflation reported in July was around or even below 3%. If this happens, I think it will be politically difficult for the Fed to raise rates.

On the other hand, looking at PCE, the picture looks bad. Annual PCE inflation peaked in September 2022 at 5.2% and has since only fallen to 4.7%. The annualized 6-month PCE inflation is 4.4% so there is not much movement there.

So, which is the better measure of inflation?

I think food and energy are a big part of how people experience inflation. People buy food and gas often, so they notice the prices so this would tend to favor CPI. There is also the thorny issue of shelter costs. These costs comprise 32% of the CPI and 18% of PCE. The problem is that there are lags in the data and there is a fair amount of skepticism around of accuracy of the OER (Owner’s Equivalent Rent) calculation.

Looking at CPI less shelter costs, the annual inflation is 3.5% but if we exclude the high months of June and July 2022, the 10-month annualized inflation is 0.4%. Yes, less than 1% !

If I was on the Fed committee, I would probably vote to pause but I can understand why some people think we should cut or raise rates.

Note - all the above numbers are from FRED

 

[MichaelB]

About this time last year there was real concern about the rising price of gasoline and many forum members believed the US economy was in recession. Now the price of gasoline has declined by more than $1 per gallon and the economy is 10% higher in nominal terms and had above average real GDP growth last year.

When the data is ambiguous, with some prices rising and some falling, it’s most often a sign inflation is heading toward its historic average, which is around 3%. The key now is wages, wage growth, and employment.

 

[Mulligan]

Core inflation in April was 4.7% for the twelve months ending in April. That’s up compared to March, Not so good.

4.7% takes quite a bit out of those 5.4% CDs many people here picked up earlier this year. After taxes, maybe there is some gain in real dollars. Maybe. Still it’s better than last year.

I need to sharpen my bargaining skills, especially with big ticket purchases.

Well one thing that 5% CDs has certainly deflated. The amount of “should I pay my mortgage off” threads here, lol.

 

[JDARNELL]

Well one thing that 5% CDs has certainly deflated. The amount of “should I pay my mortgage off” threads here, lol.

Right. With a 2.5% mortgage and a Cola’d pension your gonna have to blast me out of here.

 

[target2019]

Using Audrey's chart, the average of the averages from 1950 through 2020 is 3.5%.

I'm not convinced that 3.0% long-term is a proper value to use in my projections. How measured, FED actions, and other factors I don't know or understand are working against us for the next 25 years.

 

[Chuckanut]

I hope all those young folks who bought the first home using 2 to 3 percent money are grateful for that. My lowest fixed rate mortgage was 8 3/4%. Even today's 7% mortgages look good in comparison.

 

[GenXguy]

Gas is about $4/gal here, double what it was 3 years ago.

Eggs are the only thing I've purchased that I've seen the price drop on, but that's only after the prices skyrocketed because of Avian flu. I'm still paying more for eggs than I was a couple years ago. And yes, a dishwasher on sale is not deflation. Homeowner's insurance went up 21%. It's a different world out there. When stocks drop, they always go back up and then more. But with inflation, the vast majority of prices don't drop back and even less. So, I'll take a temporary drop in stocks instead of permanent high price increases. It's a different world we live in now.

 

[Mulligan]

Right. With a 2.5% mortgage and a Cola’d pension your gonna have to blast me out of here.

Inflation is real and certainly is hugely impacting lower income people. But fortunately I have a 2.75% mortgage with Cola’d pension also. And for me since my biggest expense is my fixed mortgage my cola raises are definitely higher than my monthly fixed costs have been the past few years. And really since I retired 13 years ago as my pension is almost 40% higher than when I retired and my personal monthly expenditures sure havent went up nearly that much. My biggest possible “inflation” looming is the expiration of the “Trump tax cuts” in 2025.

 

[Gumby]

.... So, I'll take a temporary drop in stocks instead of permanent high price increases. It's a different world we live in now.

An illustration. You have a $1 million invested in the S&P 500 in September 2000. By March 2009, it has dropped to $490k. (S&P 1495 to S&P 735) Question: When would you expect to recover the purchasing power you lost if, in March 2009, you expected average equity returns to be 7% and inflation to be 3%? (i.e. - don't look in retrospect, knowing the answer now). Answer: From Sep 2000 to March 2009, CPI went from 174 to 212.709, so you would have lost 18.2% of your purchasing power even if you had no nominal loss. But you had a 51% nominal loss, so the purchasing power of your portfolio is now only 45% of what it was in 2000. So you would need to increase your real portfolio by 2.22 times to break even. At 4% real return, 2.22 = (1.04)^x so x = 20 years. Or about 2029.

And that, my friend, is what two stock crashes in a row can do to your retirement plans. I personally worked at least 5 years longer than I originally planned just because of the dot com bomb and the mortgage meltdown. So, yes, I understand having to change your plans. It sucks.

I also understand inflation, and I'm willing to bet that everyone on this board does as well. It hurts every single one of us, and we would prefer that it be low. But your continued carping about it will not improve anything - for you or anyone else.