The title of this edition could also be called “A Deeper Dive into Inflation.” Inflation is serious stuff – for people of all ages. Consider that lots of younger people (under the age of 45) have far less awareness of inflation because they have not experienced serious and sustained inflation in their lifetimes. Those of us in our 50’s and older have likely been stung by this invisible enemy – sometimes really stung!
The reason why inflation matters so much is because it is like a thief who literally takes a chunk of your money every time you go to buy something – especially something you really need or want. So then, you must reach deeper into your pockets to pay more for whatever you were about to buy. What if you were already spending pretty close to 100% of what you make? Or what if you are retired (or close to retirement) and are on a fixed income… and already figured out the life of your dreams and what it would cost?
The title of today’s edition is “Better, Faster, Cheaper” because there are handful of items whose cost has stayed steady or gone down over time, such as
- certain types of TVs
- certain types of computers and cars
- certainly NOT cell phones!
This steadiness in prices for these particular items has given people a false sense of a world without inflation.
At the same time over the past 30 years, wages – or what workers earn – especially for the most highly educated and skilled workers have gone steadily UP. In this case, wage growth has kept pace with rising prices for the majority of things we really need and want. Inflation has been hidden in a way but certainly in existence! Think about the rise in cost for:
- High-end cars*
- Homes with the best features*
- Vacations (a Disney World trip now costs $10,000-$15,000?!)
- Quality healthcare & specialty care
- Equipment for sports and hobbies
- Various forms of technology (cell phones, music speakers, etc.)
- College tuition
BUT over the past month, more smart people are talking about inflation than in a couple of decades. Most likely these smart people are paying attention to the staggering amount of recent government spending – just in the past six to nine months. Printing money to stimulate an economy is inflationary by definition. The yield on the 10-year US Treasury is the market’s way of broadcasting where inflation expectations are going – and that yield indicates inflation going UP with that bond’s yield having just made one of its biggest and fastest moves UP in over 6 years, maybe a decade.
There is far more to say about inflation and its meaning to savers, investors and anyone who wants to have the future they envision without going broke. Here is a way to start thinking about it, especially for those under the age of 50 who may not have experienced true inflation. Think about “Lifestyle Sustainability”. The underlying goal here is to create a cash flow stream that can be adjusted upward – forget about beating an index.
On the positive side, there are other smart people who say the prevailing belief is that inflation will be contained. But that could change pretty quickly based on what the bond market (through the yield on the 10-year) tells us.
*Used car prices up 17% in past 17 months. (per The Washington Post)
*Home prices nationally were up 11% year over year in January 2021, biggest in 15 years. (per S&P CoreLogic Case-Shiller)