Inflation Thoughts – Part 2

Phew, we made it through Christmas. My wife got back 7 days before, so we crammed as much Christmas in as we could. She’s still working on sending out the holiday cards. Our 7-year-old is turning 8 in a few days, so we don’t have a lot of time to relax until after that.

I was still able to follow most of the news and the big topic on the financial front is inflation. It’s a big topic to get into during this holiday week, so I’ll be keeping this as quick and light as possible. Before Thanksgiving, I wrote about inflation blame and fixes. It may be helpful to read that article first and I still stand by everything in it. It covered a lot of reasons for inflation. If you are just curious about reasons why gas is so high read this. In any case, it’s worth another look because we got more inflation numbers and once again inflation went through the roof. Some polls are saying that inflation is a bigger threat than COVID.

As I mentioned last month, we haven’t felt the effects of inflation too much. Our mortgage stays the same and cars are paid off. Our food is a little more expensive, but we still have a chest freezer full of food that we are trying to eat down. Every time we make a little progress I find some good deal at Aldi or our local Shaw’s supermarket and it fills up a bit again. There are certainly fewer deals to be found nowadays, but we shouldn’t be forced to pay high prices for quite some time. Our gas prices are up, but I’m not sure if they are that much more than last year. I expect to spend $250 during the winter and that’s what we’re spending. Maybe as it gets colder in February we’ll have some $300 or $350 bills that hurt.

I realize that we are not most people. We probably have it better than 90% of the people. If you have to renew a rental lease or buy a car you’ll feel the pain of inflation. I want to be clear that just because we don’t personally feel it, it doesn’t mean it doesn’t exist and it doesn’t mean it can be a big problem.

I was talking with a friend about this and she was worried about how people on lower incomes are going to deal with inflation. After all, if you make a big income you can withstand food that is a little more expensive. If you are on a low income a raise in rent can be very tough.

I didn’t want to dismiss those concerns, but I think lower-income people have had some positive changes lately. The Child Tax Credit has reduced child poverty tremendously. For people on a limited income, several thousand dollars goes a long way to offset inflation. Unfortunately, that’s going away soon since it seems we can’t get 51 senators to agree to continue it. Also, the Child Tax Credit only helps if you, umm, have children of course. It doesn’t help senior citizens for one example. Senior citizens collecting Social Security will see an increased paycheck in 2022. I’m reading that it will be a 5.9% increase which should counter the effects of inflation.

Another thing to factor in is that we’ve seen a good deal of wage growth lately. I’ve read a lot of stories about it on a national level. Locally, in Newport, Rhode Island, nearly every place (has a help wanted sign promising $15/hour and several with bonuses. That includes fast food, gas stations, and places like that. I know that wages haven’t grown everywhere, so those areas that aren’t keeping up would be the ones I would be concerned about.

There’s another thing about inflation that isn’t getting much attention. When I started this blog back in 2006 the accepted average inflation calculation was about 3.5% or 4%. It was just assumed that would be the long-term inflation number. We’ve had 15 years of about 2.2% inflation according to some government numbers. When I ran the math it showed that prices could DOUBLE overnight and we’d just be where we all thought we would have been years ago. Is it possible we got too used to low inflation? Are we giving back a small fraction of the great, great fortune we’ve had over a long time? If so, is that so bad?

Finally, there’s another thing to consider. It seems that many Americans are doing fairly well. Holiday sales were up the most in 17 years, “fueled by purchases of clothing and jewelry.” That’s usually a sign the economy is doing quite well or at least that consumers aren’t stressing about putting food on the table.

So what do you think? Is inflation a reason for huge concern? Is it temporary, while we work through the Great Resignation caused by COVID? Is it mostly media coverage because people have price shock at the stores? Let me know in the comments.