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.

Politics plays a role in macroeconomic issues such as inflation. I understand that some readers don’t want to read about more politics, but it is necessary to discuss the financial topic that’s on everyone’s mind.

Inflation is here. I’ve always said that I’d find some way to adapt to inflation. I’ve since come to realize that isn’t always possible. However, we’ve been doing fairly well to battle inflation. Take most people’s “big three” expenses:

• Housing – Our housing costs aren’t rising as our mortgage has stayed the same. We haven’t needed too many services such as plumbing, but I think we’d see rising costs there.
• Transportation – Our cars have been paid off for a little while now. The price of gas is high, but we are still working from home and not driving very much.
• Food – The price of chicken hasn’t risen nearly as high as the price of beef. We’ve been eating more chicken for a while now. It’s starting to get boring, so I may need to pony up for more beef. Ground beef is still cheap. I can notice prices are higher, but Aldi still keeps prices fairly low.

As bonus, computers are very cheap despite a lot of talk about how chip shortages are supposed to make them expensive.

As you can see, things have been good for us, but I can see how it is bad for others. I’ve seen rent go up. People trying to buy cars have to pay more now too. If you have a long commute the price of gas can be very challenging.

I hope you are only seeing mild effects from inflation. It might help you feel better to blame someone. However, blaming doesn’t make things better. We need true solutions.

Blame Joe Biden for High Inflation?

There are a lot of people looking to blame Joe Biden for inflation. While the President of the United States has a lot of power, he doesn’t control everything. He promised to end COVID through vaccines, but there are still a lot of people who haven’t taken them. Also, the delta variant made things ten times worse.

Consumers are upset that gas prices are rising. However, NPR explains quite well, Biden, or any US President can’t do anything about gas prices. Biden wasn’t the cause and can’t fix high gas prices. Over the long term, Biden’s policies on electric vehicles and solar power would drastically cut the cost of commuting.

What about food prices? The Conversation says that fuel prices, bad weather, and COVID are to blame. We covered fuel prices. Scientists have conclusively shown time and again that “bad weather” is due to climate change. Biden has pushed for better climate change policies, but again, this is a long-term solution. We might never be able to reverse the damage climate change has done, but the more action we take and the earlier we take it, the better we’ll be in the future. Finally, the closer we get everyone to being vaccinated, the fewer effects of COVID on the economy. Biden has done everything he can to try to get all Americans vaccinated.

What about housing prices? The American Action Forum explains that it’s all about COVID. There’s a combination of unprecedented demand and a labor shortage to create new housing. It seems like this was a limited-time phenomenon – I haven’t seen prices go up in a few months. As mortgage rates rise, prices likely fall and maybe get more acceptable.

Taking all these together, I don’t think it’s fair to blame Joe Biden. Any US President would have seen the same circumstances leading to the same inflation. However, there’s one last thing out there…

Biden (and his administration) approved a $1.9 trillion COVID stimulus package. This was on top of the 2.2 trillion CARES package and a $900 billion bipartisan stimulus that Trump signed in late December 2020. At the time Trump was disappointed that more money wasn’t given in the form of direct payments and called it a “disgrace.”

So putting specific politics aside, it’s easy to say that both parties agreed to put a lot of money out there. I don’t think this was a bad thing, it helped many people get by during a global crisis. There have been some very positive things to come out of it such as child poverty rates dropping to 5.6% from 14.2%. I’m not going to criticize the stimulus because I think everyone made the best choice they could at the time and I’d rather err on the side of helping people in a crisis and worry about inflation now.

All that said, it does need to be noted that there’s a lot of money out there and fewer products available due to the supply chain.

The Real Blame for Inflation?

Robert Reich, a contributor to The Guardian gives his compelling analysis for inflation, big corporate America. Specifically, he points out how industries have consolidated over several decades. This has left little competition. For example, he points out that Proctor & Gamble and Kimberly-Clark control the diaper market. When P&G said they were prices, Kimberly-Clark did the same. P&G’s profits are extreme, they don’t need to raise prices. P&G had enough money to spend $3,000,000,000 to buy its stock back. He gives a similar example with Coke and Pepsi.

What can fix this problem? He says the answer is better antitrust law. If that’s indeed a solution, the Biden administration is the first one I’ve seen in a long time that is looking to real antitrust action.

CNN has an inflation explainer. It places all the blame on COVID and getting vaccines, the result of going from 0 to 100 in the blink of an eye.

Final Thoughts on Inflation

Inflation is complicated. It doesn’t seem like there is a short-term solution. The good news is that the economy looks like is back on track. In addition to that, the stock market is hitting new all-time highs seemingly every week now. I know that there’s more to the economy than the stock market and retail sales numbers, but it also seems like Americans have more savings than they’ve had in years, maybe decades. Combine that with the aforementioned drop in child poverty and I feel like the economy is in a very strong place.

I’m even more optimistic about the future. The longer-term solutions (limiting climate change problems, limiting reliance on fossil fuels) seem to be heading in the right direction.

Maybe I’m looking at things through rose-colored glasses? What do you think? Let me know in the comments below.