What the Inflation Rate Means for You

If you’re anything like me, when you are out shopping these days you can’t help but notice the everyday prices of things seem to be going up and that influences whether you make a purchase now or wait for what you hope might be a better deal down the road.

The inflation rate is lower than expected, but is that good news? Some costs have increased while others have fallen, so it depends on your circumstances.

Are everyday prices rising?

Last weekend, my wife and I were browsing in a nice store for a new fragrance she wanted to purchase. The price was discounted online, but she wanted to go to a store and check out the scent. Since it was nice sunny afternoon, we decided to take the ride. While out and about and walking in the shopping center, my wife suggested that I was overdue for a haircut. I pride myself on scrimping on the cost of my haircuts and simply can’t bring myself to pay “boutique prices” for it. I have paid as little as $5.99 with a coupon not too long ago, and at most I have paid “senior” haircut prices of $12.00, grudgingly of course.

So I decided to check out a shop that was right in front of me for a “sports” cut (whatever that means). I walked in and took a quick look at the price list and noticed that the prices were higher there by far for a senior cut, $17.00. So I called my regular shop and was told senior cuts were now up to $14.00, an increase of 17% since my last visit just 2 months ago (inflation?). I decided to wait because I knew that very soon, haircut prices would be going “on sale” for the back to school crowd as haircuts are always reduced at that time. For now, I was ok skipping it and hoping I was right.

By the way, we passed on the new fragrance at the shop too and my wife purchased online after sampling it at the store and saved about 30% off the store price. Now back to my haircut story. This Tuesday I got a pack of coupons in my mailbox and sure enough there was a big ol’ $7.99 coupon for a haircut (good until Labor Day) at my regular shop. Of course that put a smile on my face and I got my haircut yesterday without the crowds of the weekend, no wait and saved myself about $10 bucks!

Inflation reality check

Unfortunately, necessities like food or your utility bills don’t quite fall into the category of wait-and-see. You need to eat and keep your home warm or cool, and waiting for a better deal isn’t really an option. When prices go up you may have to cut back on usage or quantities or brand choices when it happens.

Energy costs like electricity and gas for your home may make you a little warmer in summer or colder in winter. Haven’t all of us raised or lowered our thermostats because of the cost of air conditioning or heating our homes over the years?

Where are we so far in 2017?

Inflation as of July 2017 is lower than expected and that is good news! According to published reports, inflation in July was at 1.7% over last July and so far projections are that for this year the total core inflation rate (inflation without food and energy costs figured into the number) will be about 1.7% which is well below last year’s 2.2%.

But, not everything is as rosy as it looks.

On the surface, inflation is looking pretty good. In fact, we have been on a roll since the “great recession” ended. Since 2012, the inflation rate has only averaged about 1.3 % a year and that is much different than past years and recent decades. But inflation is actually a relatively personal thing. By that I mean it affects different people in different ways and that really depends on which stage you are in life. The government numbers are an overall story of the cost of living, and any individual’s costs can vary from it dramatically.

What’s going up and what’s coming down?

When the government says that there isn’t a big spike projected in the inflation rate, it can actually be misleading. There are always categories that go up, some even severely and some that go down at the same time. That’s how averages are calculated. So what are the trends right now and what is the projection for the short or long term? Here are some things to look at:

Food costs

We all have to eat, albeit some of us eat better than others. When inflation affects the cost of food, it affects almost all of us hard. Meat and milk prices are increasing faster than the overall inflation rate and that is expected to continue for a while. Those categories are still recovering from weather and disease that caused shortages, and the rebuilding of cattle herds is still a work in progress.

Another impact on the inflation rate due to food costs are the increases in dining out. The inflation in that area is well above the overall inflation rate and in July was almost 5% higher this year over last.

There is some good news in that the cost of production of grains has kept inflation in check for bread and cereals this year.

Another plus is the rise of new companies from Europe (like Aldi and Lidl) as well as online food retailers and services that are forcing supermarkets to control prices in order to remain competitive. That pressure is growing every day.

Medical costs

You’re probably tired of living with and hearing about the increases in the cost of medical care, but that reality seems to be continuing despite the endless discussions about what to do and how to fix it. The governments stats show that hospital care, outpatient care, and prescription costs are going up every day and the cost of medical insurances is skyrocketing all over the country. This is probably the biggest factor that can derail your finances when it comes to inflation in the foreseeable future.

Healthcare is a perfect example of how your life stage can determine how inflation will affect you. For someone who is chronically ill and needs lots of care, medicines, and doctor visits (like me and my wife), these costs take an ever-increasing share of our income and force us to cut back on everything from food, to utilities, and even the luxury of a vacation.

There is a little good news. Many name brand prescriptions have now become available in generic versions and that of course has lowered prices a bit.

But compounding that rise in medical costs, when you are on a “fixed income” (I really hate having to use that term), it hurts even more. If you have a job you can at least try to earn pay increases that can outpace inflation. If you are living mostly on Social Security and retirement funds, your chances of increasing your gross income to fight inflation is just about nil. That’s why a lot of us in that situation continue to try to earn money even in our retirement years. It may just mean survival and that’s sad.

Energy costs

Energy costs, like the cost of oil, have been low and relatively stable for quite a while. We all remember not that long ago when gas prices soared over $4.00 per gallon and we have come to actually appreciate prices in the $2.00-$2.50 range as “a bargain”. That’s one of my problems: I can actually remember when it was only $0.25 a gallon as “recently” as 1967 when I had my first car. I guess that’s never going to happen again. But you may have noticed recently how the cost of energy has started to sneak upwards.

Those increases and rates, which at times become volatile and are affected by daily world events, mean that gas for your car, electricity and heat for your home, and the cost for industries to function will eventually affect your life and wallet. Projections for energy costs are that they will slowly increase in the short and long term despite our own attempts to be totally energy independent.

The world of retail

Retail sales are holding steady and inflation has been modest here. But, and it’s a big one, as jobs increase and wages go up, it can and will cause a rise in consumer demand and shortages in supply which eventually drives up the retail prices of just about everything out there. It’s one of the penalties that an expanding job market and wages can and does cause. The result of the 601,000 jobs created already this year and the increase in wages of almost 3% over 2016 will lead us to higher inflation down the road.

What other items are going up and down?

Home prices are going up, but that means equity is returning to the homeowner so depending on where you are in the home market it can be good or bad news.

The costs of autos are rising, but if you are selling a used car you can get more for it than before, so again, a plus or a minus depending on your situation.

Insurance, especially auto insurance is going up. More jobs mean more commuters and that means greater risk of accidents and it will cost us all more no matter what you individually do as a driver. There is also the cost of auto repair which is increasing rapidly that adds to the auto insurance costs as well.

TV subscription services continue to spike even though there are now a lot more alternatives to “cable” than ever before. We are mostly all addicted to our TV’s and we’re showing no signs of giving that up even though we continue looking to save money on it. When the providers see someone else increasing their costs, they jump right on that bandwagon too.

Interest rates are headed upward for now and also in the foreseeable future. The Fed has set goals of 3-4% inflation growth and, believe it or not, that is a stimulus for our economy that creates more jobs, higher salaries, and greater GNP growth. It may not benefit all of us though and that is the rub.

Bottom Line

It doesn’t often occur to most of us how the inflation rate can affect us and our buying power. Here’s a reality check for you. If you earned $50,000 a year in the year 2000, you would have to be earning $72,507 today just to have the same buying power and to keep up with inflation. Keep in mind, retirement can last 25 years or more so that makes figuring this all out and being prepared really difficult.

Even if you are earning over $72,000, you must still be aware of what you will need in your future to cover your lifestyle expense plans in your retirement which may be 5, 10, 20, or 40 years from now! It is a daunting task.

How are you dealing with the inflation and cost of living in 2017? What are you doing to help control your own costs and or increasing your income? How much do you pay for a haircut? Have you given thought to how you will cope with retirement when you are dependent on Social Security and your retirement plan?

brokeGIRLrich

About Gary Weiner @ Super Saving Tips

Over the last 45 years I’ve worked in retail (department stores and supermarkets) and financial planning. In addition, I am a shopper, born and bred, who enjoys the challenges of finding the best items for the best prices. When I’m not busy saving money or writing here at Super Saving Tips, I enjoy baseball, music, and classic movies. I am retired and live in New Jersey with my wife.

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26 Comments

  1. I pay $14 for my hair cut. It was $12 but went up about a year ago. I can off set that cost but delaying the cut for a bit. 🙂 Looking for deals, cutting costs where you can I believe are the best immediate ways to fight inflation. I finally stopped in at my local Aldi last week and found some great deals. I’ll certainly be back.

    It may take a little more of your time, but shopping around and comparing prices will save you money in the long run.
    Brian recently posted…Student Loan Debt: Reversing the TrendMy Profile

  2. We were talking the other day in my knitting group about the fact that clothing is so cheap that making clothes no longer saves money…it tends to cost more than buying at a store. (which may be why we all have way too many clothes in my house.)

    I have noticed higher prices at restaurants when we go, but I think some of the rising cost is delayed normal inflation. Restaurants tried really hard to keep lunches under $5, then under $6 for lunch, and under $10, then $12 for dinner entrees. They knew the price points at which customers balked, but after a while, they had no choice but raising prices. I suspect they’re still searching for the new equilibrium and we’ll see the prices rise and plateau, rise and plateau.
    Emily @ JohnJaneDoe recently posted…What Would You Do? Buying a Computer for My Kid EditionMy Profile

  3. Our family hair cuts are free since we do it ourselves. We look a frightful mess but we’re not ugly. Frugal cute rather than chic cute hahaha.

    This post makes me question the real advantage of raises. It seems every few years a pay bump just sets you back to where you should be…

    • Pay increases seem to always be offset by rising costs and unfortunately, over the past decade, salary increases have become more and more difficult to obtain. This year so far seems to be better than it has been in recent memory. Thanks for your comments, Lily.

  4. Most things I’ve read say that the more humans are involved close to delivery, the more the cost has increased. You can’t outsource healthcare to India–at least not most of it, and the cost has gone up considerably. Except for very expensive limited lines, you can’t find clothes made in the USA–outsourcing them to Vietnam has made them very cheap.

    As one who remembers the ’70s, inflation in retirement does scare me; though hopefully if it happens some of our “safe” investments will start paying more.

    • There’s definitely a connection to the prices and inflation rates when something is manufactured or served here in the United States. It’s a double-edged sword, RAnn, because we all want the best price, but it does undermine American standards of living because it competes with American wage earners when we outsource everything. Like most people, I know the problems, but I don’t have the solution!

  5. Thank you for pointing this out! I’ve definitely noticed prices rising despite the overall inflation numbers. What IS going down to offset these rising costs? I’m legitimately clueless.
    Femme recently posted…Don’t Wait to Speak UpMy Profile

    • Without being specific, Femme, most things that decline in price are directly linked to a decline in demand. As long as something is popular, one of the key elements in its price is charging whatever the market will bear. That’s a rule that’s been in existence since time began.

  6. I think one of my favorite things about Mint is that it tracks the Kelly Blue Book value of my car and I always think it’s interesting when it goes up. I don’t really understand why it would ever go up, it’s a pretty old, used car at this point, but it’s cool that it does. So thanks, inflation!
    Mel recently posted…Side Hustle for Fun GoalsMy Profile

    • Since new always costs more than old, there’s always a big market for the savings involved. Older cars have risen in value because people are consciously looking for ways to save, which makes your old car worth more. So you can thank demand as well as inflation, Mel.

  7. I use to go to the spa for a service that was $70 and at the beginning of the year they increased it to $86. Their reasoning was they hadn’t changed the price for 5 years. And I get it, but I just couldn’t bring myself to pay that amount once a month. Now I push it to every 8 weeks.

    • The rationale of your spa can be questioned. Anytime prices go up 20% or more at once (which is more than double what inflation has been over the last 5 years), I think we have to look at another factor. As long as there’s high demand for their services, they can raise prices and probably won’t stop until they see more resistance to them. If everyone reacts by slowing down the rate of services, it may cause them to rethink their pricing.

  8. As much as I like seeing inflation at zero it’s better than deflation which is what happened during the Asian Crisis in the 90s. I believe that it basically destroyed their stock market and took awhile to dig out of. So while I complain about prices increasing, looking at the alternative, I’ll take it 🙂
    Mustard Seed Money recently posted…From Homeless to Hopeful in One YearMy Profile

    • Deflation does have a very negative effect in the big picture of economics. In fact, the Fed plans for inflation to keep our economy healthy. It just has to be kept in a controllable state, otherwise it also has severe effects on our finances. And that is not as easy as it sounds! Thanks, MSM.

  9. You are sure a smart buyer, irrespective of the inflation, lots of time prices of the items are also driven by the demand and supply principle, so during off-season when demand is less prices come down naturally.
    Adam Sharpley recently posted…Is Roofing Warranty Going to Cover the Roof’s Lifespan?My Profile

  10. Thank you for writing this. I feel like prices are going up more than the 1.7% inflation rate that the govt. posts. We have switched to eating out at breakfast instead of at dinner. The restaurant dinner prices have gotten so high. Also our favorite dinner restaurants have closed.

    • I definitely agree with your experience with dinner prices. We always try to use a coupon when possible and even with a buy one, get one free, it seems that we can’t escape for less than $40 if we do go out. We try to reserve dining out in a nice restaurant for special occasions. Thanks for your comment.

  11. Hey, Gary. I remember gas prices as low as $0.50. I also remember the Volkswagen Beetle being the last car sold new for under $2,000 (early 70s). Inflation is scary, especially for a retiree. For Mrs. G and I, the big worries going forward are food, energy, transportation, housing, and healthcare. We want to build a funky Quonset hut on about two acres of land next year. That will give us plenty of space for gardening and some residential solar power. We also aren’t car people, so we don’t need anything fancy. Any decent four-year-old car/SUV with 40-50k miles on it will do. So we think we’ll be able to manage our food, energy, transportation, and housing costs well. The real fly in the ointment, however, is healthcare. I think the only way to manage those costs successfully is to make use of medical tourism. I don’t want to go to Mexico or India for healthcare, but I also don’t want to be bankrupted by the medical-industrial complex. It should be very interesting over the next few decades. Thanks for another great post, Gary. Inflation is relatively tame for now. I hope it lasts.

    • Thanks, Mr. Groovy. The key to your retirement is “thinking” (or as you call it, Functional Brain Engagement) about what can happen and what you want to do to be prepared. You obviously have a plan and that puts you way ahead of most people. The healthcare question mark is the most worrisome thing. That’s the reason everyone is hoping to see some changes in healthcare now and in the future. Thank you very much for adding your comments.

  12. I was helping someone recently with college planning for their three kids. A BIG factor is inflation. College inflation is actually running about twice the CPI inflation rate. It definitely needs to be considered – especially over an extended timeline, like college that might be 15+ years away.
    Brad – MaximizeYourMoney.com recently posted…Flexible Budgeting: The 50/20/30 Rule Of BudgetingMy Profile

    • Such a good point, Brad. You have to allow for those kind of long term expenses to keep increasing. The good news is that starting your college funds early in your children’s lives allows the compounding of interest which should offset inflation factors. I appreciate your comments.

  13. I noticed prices have gone up a lot faster than my pay has. So we try to do things we can for ourselves like planting a garden, changing our oil in our cars, avoiding eating out when we can and driving used cars. We are doing great on the costs of haircuts thought as my husband is the famiy barber. He is actually quite good with the clippers and the shears. He trims my hair every 6-8 weeks to keep mine well groomed and the boys get their haircuts monthly. I joke with him that he should get licensed and start a side business doing hair. My mother got a bad haircut that she paid $42 for and said my husband could do a better job, well she was at the house a few months later when the boys were getting their haircuts and she mentioned she needed her hair trimmed. My husband said no problem, have a seat and to my surprise she said ok, and he caped her and asked how she wanted it cut. She said not too short, so my husband asked 1/2″ an inch, an inch and a half? You tell me. She said an inch would be fine, so hubby took an inch off her ends. She was happy with the result, smiled and said she liked the price of free for a haircut she was happy with. He has given my best friend a couple haircuts and this last weekend while his daughter was visiting, she asked him to give her a haircut. So some people think it is being cheap, And that I am crazy to let my husband cut my hair, but he always does a great job giving me a haircut and the fact that my mom, my best friend and step daughter ask him to cut their hair for them, tells me that I have it good. I don’t dread getting my hair cut like I did when I had to go to the salon and I was usually unhappy with the haircut and the price.

    • Carolyn, that’s an excellent way to deal with the repetitive process of haircuts. Your family is not only saving money (which by the way, doesn’t make you cheap) but they’re also pleased by the haircuts and that’s terrific. It’s very cool that your husband has a talent for it. Thanks for sharing the ways your family is saving money.

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