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.
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:
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.
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, 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.
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?