Inflation varies according to your age and spending
What will inflation be in the coming years? The real
answer is that it varies according to your age and spending
patterns. Inflation wallops someone with kids in college,
and might be hardly noticeable to stay-at-home types. And
recent inflation will stun someone looking for a used car,
but might be a yawner for someone shopping for a new
Inflation is a sustained increase in prices for general goods
and services in the economy and is typically measured
annually. Theoretically speaking, as inflation rises, every
dollar you own buys a smaller amount of a good or service.
While the reported inflation rate (typically reported as the
CPI or Consumer Price Index) is important for Social
Security income calculations, which rise with the index, it
may not accurately reflect your individual inflation rate.
The summer of 2021 and inflation
On June 10, the U.S. Bureau of Labor Statistics (BLS) announced that the Consumer Price Index increased 0.6%
in May after rising 0.8% in April.
But maybe more importantly, the BLS reported that the
overall inflation rate rose to 5% this past year, which is the
largest 12-month increase since a 5.4% increase for the
period ending August 2008. But that 5% annual inflation
figure masks a huge range among the individual
components of inflation – and will hit each of us
The index for food rose 2.2% over the past year
The index for full service meals rose 4.1% over the
last 12 months, the largest 12-month increase since
The household furnishings and operations index
increased 1.3% in May, its largest monthly increase
since January 1976
The index for new vehicles rose 3.3% over the past
12 months, its largest 12-month increase since
The index for used cars and trucks increased 29.7%
over the past year
The index for motor vehicle insurance rose 16.9%
over the past year
The energy index rose 28.5% over the past 12
The gasoline index rose 56.2% since May 2020, the
largest 12-month increase since the period ending
The medical care index rose 0.9% over the past 12
months, its smallest increase since the period
ending March 1941
In other words, if you are in the market for a new car,
you’re in luck, as the inflation on new cars (3.3%) is less
than the overall inflation rate (5.4%). But if you are in the
market for a used car or truck, prepare for sticker shock as
used cars and trucks have increased about 6x faster than
the currently high inflation rate.
Oh, and to insure your car? Well that’s way up in price too.
On the other hand, the cost of medical care has slowed
Inflation is personal
We get to choose some financial expenses and lifestyle
choices, although others we must accept. People planning
to retire commonly ask how to calculate the future rate of
inflation because projecting what price increases lie ahead
is central to anticipating annual income needs.
Sadly, there is no magic number. And often times the
assumed number can be flawed and can vary significantly
from one family to the next.
For example, if you enjoy travelling, you will likely incur
many service expenses including hotels, dining and
transportation, thus you should expect travel inflation will
be higher than the reported CPI. Travel expenses tend to
increase in the early years of retirement and slow later on
as people take fewer trips.
On the other hand, if you are a homebody who does your
own yardwork and property improvements, then you will
likely encounter lower inflation levels relative to your
traveling friends (although lumber prices have skyrocketed
over the past year).
The key point is that your personal inflation rate is unique
based on your age and your lifestyle. The headline CPI
number is important only as a general gauge.
The more we consider prices as they relate to goods of the
economy – and the lifestyle of the investor – the more
accurate we can be in estimating an inflation number. For
now, car dealerships are loving the higher prices for used
cars and trucks.
Talk to your financial advisor to make sure you accurately
project for inflation as you think about your retirement
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