I was reading Retire By 40 a couple of days ago and Joe had a good article about not forgetting about inflation in retirement. After all, if you are going to “Retire by 40”, you’ve got to consider dealing with potentially 45 years (or more) of inflation. If you retire at age 65, you are looking at “only” 20 (or more years). (Yes, that’s me getting ‘mathy’ by subtracting 25.)
Inflation over 45 years is a significantly bigger deal than over 20 years.
In the article, Joe mentioned the rising prices of the lunch special at a local Chinese restaurant. In a few years, the $5.50 special became a $7 one.
That triggered a thought about my own mental inflation index, the price of Subway footlongs subs. You might remember that back in 2008, Subway launched a $5 footlong promotion. From everything I’ve read, it was fabulous successful, so successful that it became part of the regular menu.
Over time the number of subs that were available for $5 dwindled. Then they disappeared except for a monthly special. That disappeared and, in my area, has been replaced with $3 six-inch sub. The $5 footlong became $5.50. Now the cheapest footlong is $6.25.
The Subway Footlong Index (SFI) is a good way to thin slice overall inflation because Subway can’t reduce the product and still call it a footlong. (Though I supposed they could “thin slice” in a different way by making the meats thinner or smaller). It’s different than the price of a computer which always seems to be the same or a “half gallon” of ice cream that shrinks to 1.75 quarts.
Another useful thing about SFI is that most of you know what I’m referring to. Sure in San Francisco, Hawaii, or New York, the same subs might be $7, but people have probably traveled to an area with a Subway that has typical pricing.
Let’s look Subway prices and see if the SFI makes any sense with regard to traditional inflation indexes. I’m going to presume that you might have a $6 footlongs (I think I’ve still seen these). That means that prices have gone up around $1 (or $1.25 for me) in 8 years… from 2008-2016. We’ll call it between 20-25% over 8 years.
That’s around 2.7% per year compounded annually… which seems in line with other measures of inflation.
Maybe there really is something to this Subway Footlong Index? What do you think? Let me know in the comments.