How do you save when inflation takes it all away?

[Tony_SS]

I find it really frustrating to try and save, when admitted inflation is 2% and actual is more like 5-10% every year. The cost of living is going nuts, gas, healthcare, etc.

I make a whopping .5% on my savings. That's not enough to keep up with inflation. Do you all just eat it? What percentage do you keep liquid and what do you risk?

[mpbaker22]

How did you go about calculating actual inflation?  It's actually less than 3% for most people.

Most people here invest with returns far greater than inflation.

[Tony_SS]

How did you go about calculating actual inflation?  It's actually less than 3% for most people.

Most people here invest with returns far greater than inflation.

Health insurance, utilities, gas, groceries. The "official" inflation numbers given by the US govt do not include food or energy prices.

I will become an investment ninja when I'm finished paying off my remaining debt, otherwise I can't justify investing money when I have to pay interest on debt, even if its 1.9% interest.

[arebelspy]

If you have debt at 1.9% when inflation is more than that, that's FREE MONEY.

Just like you're complaining that you can only get .2% on your money when inflation is higher, whoever loaned you that is only getting 1.9% when inflation is higher.  Naturally keeping it and investing in things that return much higher than inflation is the way to go.

Don't believe the conspiracy charges about inflation.

There's one simple answer to "How to get ahead of inflation?" - Invest in things that produce a return greater than inflation.  You've named two things you put your money into: low interest debt (below even stated inflation rates) and savings returning 0.5%.

Of course you can't beat it that way.  Time to change what you are doing.

[footenote]

Dow Jones Industrial Average: + 18.4% year-to-date
Standard & Poor's Index: + 17.97% YTD
NASDAQ Composite: +18.77% YTD

Owning equities is how many investors cope with inflation.

[Eric]

The "official" inflation numbers given by the US govt do not include food or energy prices.

What?  Of course food and energy are included!  That's what most people spend their money on.

Here's from the latest release from the BLS:

The all items index increased 1.8 percent over the last 12 months, an
 increase from last month's 1.4 percent figure. The index for all
 items less food and energy has risen 1.6 percent over the last year,
 the smallest 12-month change since June 2011. The energy index has
 risen 3.2 percent over the span, and the food index has increased 1.4
 percent.

http://www.bls.gov/news.release/cpi.nr0.htm

[Tony_SS]

If you have debt at 1.9% when inflation is more than that, that's FREE MONEY.

Just like you're complaining that you can only get .2% on your money when inflation is higher, whoever loaned you that is only getting 1.9% when inflation is higher.  Naturally keeping it and investing in things that return much higher than inflation is the way to go.

Don't believe the conspiracy charges about inflation.

There's one simple answer to "How to get ahead of inflation?" - Invest in things that produce a return greater than inflation.  You've named two things you put your money into: low interest debt (below even stated inflation rates) and savings returning 0.5%.

Of course you can't beat it that way.  Time to change what you are doing.

How is it any theory when my health insurance goes up 10-15% every year? That is not a tin foil conspiracy, is a fact. And it's also a fact that CPI does not include food or energy prices.

http://www.dailyfinance.com/2012/03/02/a-better-inflation-gauge-shows-why-inflations-much-worse/

According to its latest revised figures, the everyday price index rose 8% in 2011. That's much higher than the 3.1% increase in the CPI, as price hikes for gasoline and food played a much bigger role in the EPI's rise.

I do plan on changing, I've just got a debt emergency, then I'm going to get serious about investing to beat inflation.

[Cecil]

I haven't noticed a significant change in grocery prices since I started tracking my expenditures in 2006. Our food budget has been quite constant since then - at least certainly not inflating by 5-10%/year!

Gas has gone from 72.7 to 147 c/L over the last 11 years, which averages to about 7%. But most of that is the spiking crude oil prices, and additional local taxes which will have gone to public services. I dealt with that by not driving as much.

Electricity hasn't changed, I'm still paying $0.07/kWh.

My health care premiums have gone from $96/mo to $120/mo in the last 10 years, an inflation of 2%/yr. My employer pays most of that anyway.

I guess I don't see the 5-10% inflation you're claiming. Can you give us some examples of prices you used to pay and what you pay now?

[Eric]

And it's also a fact that CPI does not include food or energy prices.

Ummm, I just linked you to the official Bureau of Labor Statistics press release above that talks about food and energy increases being part of the CPI.  It even has charts listing "Food" and "Energy".

[Cecil]

And it's also a fact that CPI does not include food or energy prices.

http://www.dailyfinance.com/2012/03/02/a-better-inflation-gauge-shows-why-inflations-much-worse/

According to its latest revised figures, the everyday price index rose 8% in 2011. That's much higher than the 3.1% increase in the CPI, as price hikes for gasoline and food played a much bigger role in the EPI's rise.

The "Core CPI" doesn't, but the CPI-W and CPI-U do.

The "Everyday Price Index" is released by a corporation called the "American Institute for Economic Research". Who are they and what are their financial incentives?

[Tony_SS]

The "official" inflation numbers given by the US govt do not include food or energy prices.

What?  Of course food and energy are included!  That's what most people spend their money on.

Here's from the latest release from the BLS:

The all items index increased 1.8 percent over the last 12 months, an
 increase from last month's 1.4 percent figure. The index for all
 items less food and energy has risen 1.6 percent over the last year,
 the smallest 12-month change since June 2011. The energy index has
 risen 3.2 percent over the span, and the food index has increased 1.4
 percent.

http://www.bls.gov/news.release/cpi.nr0.htm

No, the Consumer Price Index, or Core inflation does not include food or energy prices.

[Eric]

The "official" inflation numbers given by the US govt do not include food or energy prices.

What?  Of course food and energy are included!  That's what most people spend their money on.

Here's from the latest release from the BLS:

The all items index increased 1.8 percent over the last 12 months, an
 increase from last month's 1.4 percent figure. The index for all
 items less food and energy has risen 1.6 percent over the last year,
 the smallest 12-month change since June 2011. The energy index has
 risen 3.2 percent over the span, and the food index has increased 1.4
 percent.

http://www.bls.gov/news.release/cpi.nr0.htm

No, the Consumer Price Index, or Core inflation does not include food or energy prices.

Well then, I guess all those charts are lying, prices are out of control, and we're all screwed.  Whew!  Good thing we settled that!

[Tony_SS]

I haven't noticed a significant change in grocery prices since I started tracking my expenditures in 2006. Our food budget has been quite constant since then - at least certainly not inflating by 5-10%/year!

Gas has gone from 72.7 to 147 c/L over the last 11 years, which averages to about 7%. But most of that is the spiking crude oil prices, and additional local taxes which will have gone to public services. I dealt with that by not driving as much.

Electricity hasn't changed, I'm still paying $0.07/kWh.

My health care premiums have gone from $96/mo to $120/mo in the last 10 years, an inflation of 2%/yr. My employer pays most of that anyway.

I guess I don't see the 5-10% inflation you're claiming. Can you give us some examples of prices you used to pay and what you pay now?

Well down here in the US, in my state things are different. Even though I used LESS electricity than last year, I am still paying about 12% more this year. Food prices have inched up. I don't have a spread sheet, I just notice the rising prices. Anyway moot point, I need to get investing to beat it. Not here to complain about it.

[matchewed]

The BLS does take into account food and energy when calculating one of their inflation numbers. https://forum.mrmoneymustache.com/ask-a-mustachian/inflation-formula(s)/msg72213/#msg72213

If inflation is eating your savings maybe you're in too conservative of an investment.

[Tony_SS]

The BLS does take into account food and energy when calculating one of their inflation numbers. https://forum.mrmoneymustache.com/ask-a-mustachian/inflation-formula(s)/msg72213/#msg72213

If inflation is eating your savings maybe you're in too conservative of an investment.

I just have a Money market that earns .5% I think. But it's all liquid. Once the debt is gone, I'll be able to invest more w/o risking my savings.

[matchewed]

I guess my counter would be why isn't the money in your MM account currently actively in the hands of the institutions/people you are indebted to?

If you are actively paying it off instead of socking it away to a MM account you will avoid the inflation worries.

[Tony_SS]

I guess my counter would be why isn't the money in your MM account currently actively in the hands of the institutions/people you are indebted to?

If you are actively paying it off instead of socking it away to a MM account you will avoid the inflation worries.

That MM account is basically my savings/emergency funds. If I paid off the remain debt: medical, student loan, car, it would be cut in half. I'm not prepared to take that risk being self employed. I should all my debt gone by the end of the year anyway. Then I'll have about the same amount in my MM.

[matchewed]

So you're frustrated about a 5 month time frame of 3% annual inflation eating into your .5% MM fund. Perspective can be everything in life sometimes.

[Kipp]

No one seems to really be addressing the health care and there are many factors as to why it can "jump" so much in a single year, but it may not be inflation.

I was on the health insurance committee at my previous job and here is what insurers will sometimes do.  They will price a product at a significant discount (say 25-30%) to get the business and then jack up the rates over the next 1-3 years to get in line with the rest of the market.  It appears as if you are suffering massive inflation, when really just the discount / promotion period is ending - kind of like a cable TV bill.  Of course there is inflation on top of the health insurance increases to the catch up to the market price and changes in health care law as to what is mandated may increase the price if the plan did not have those features in place.

[Tony_SS]

So you're frustrated about a 5 month time frame of 3% annual inflation eating into your .5% MM fund. Perspective can be everything in life sometimes.

Its was more of a broad question... saving money is losing it due to current inflation. I'm not ready for the investment part yet, but when it comes, I'm going to kill me some inflation.

[impaire]

How is it any theory when my health insurance goes up 10-15% every year? That is not a tin foil conspiracy, is a fact. And it's also a fact that CPI does not include food or energy prices.

http://www.dailyfinance.com/2012/03/02/a-better-inflation-gauge-shows-why-inflations-much-worse/

Did you read the article you linked? The index you're using does not compare similar items, it takes into account how people change their purchasing behavior over time (i.e. they are buying smartphones today that they weren't buying 10 years ago). What this index measures is lifestyle inflation, not price inflation. If there's one thing I've taken away from this website, it is precisely that lifestyle inflation will screw you.

The rest of your question, i believe, has already been answered by previous mustachians...

[Tony_SS]

How is it any theory when my health insurance goes up 10-15% every year? That is not a tin foil conspiracy, is a fact. And it's also a fact that CPI does not include food or energy prices.

http://www.dailyfinance.com/2012/03/02/a-better-inflation-gauge-shows-why-inflations-much-worse/

Did you read the article you linked? The index you're using does not compare similar items, it takes into account how people change their purchasing behavior over time (i.e. they are buying smartphones today that they weren't buying 10 years ago). What this index measures is lifestyle inflation, not price inflation. If there's one thing I've taken away from this website, it is precisely that lifestyle inflation will screw you.

The rest of your question, i believe, has already been answered by previous mustachians...

Yes it take into account lifestyle inflation.

I just think CPI is a joke. Core inflation should measure 3 things: Energy, Food and Health costs as that is what affect the cost of living the most. The rest is just cooking the books, like when the official unemployment rate is 7%, but does not count people who's benefits have run out, or people who stopped looking for work, etc. But I digress.

How much liquid savings do you all keep on hand to cover expenses in case of emergency job loss? I have read 8 months is good to have...

[Eric]

How much liquid savings do you all keep on hand to cover expenses in case of emergency job loss? I have read 8 months is good to have...

Here's a recent thread (with a poll!) discussing how much we keep in Emergency Funds

https://forum.mrmoneymustache.com/welcome-to-the-forum/emergency-funds-what-do-you-do/

[matchewed]

Take a look at page three of the pdf I linked to in the other discussion. It goes over exactly what is excluded and why. It's just great to go off of other websites and their "reporting" of what the government does or doesn't measure, but I'll take the information from the source and the outline of how these figures are calculated.

E-Funds - All depends on how "in demand" your skill sets are, expenses, individuals you need to support...etc.

[mpbaker22]

This remind me of an overheard at work.
Two women were discussing how they weren't going to be able to afford the increase cost of gasoline and how they would just have to increase their credit card debts to pay for it.  This was as I walked by with bike helmet in hand.

It seems to me that Tony just doesn't want to listen to facts.  Core inflation was ~1.6% as stated earlier.  Of the food and energy items, one was 1.4% which would bring inflation down.  The energy inflation was 3.2% which would bring the index up, but not much, and certainly not above 3% let alone 5-10%.

[Tony_SS]

Thanks for the link, Eric.

This remind me of an overheard at work.
Two women were discussing how they weren't going to be able to afford the increase cost of gasoline and how they would just have to increase their credit card debts to pay for it.  This was as I walked by with bike helmet in hand.

It seems to me that Tony just doesn't want to listen to facts.  Core inflation was ~1.6% as stated earlier.  Of the food and energy items, one was 1.4% which would bring inflation down.  The energy inflation was 3.2% which would bring the index up, but not much, and certainly not above 3% let alone 5-10%.

Do you know the women? Maybe they need to drop their children off at school, or pick up groceries on their way home from work. Not everyone can live a block away from their job or even ride a bicycle to work.

It seems to me that mpbaker22 doesn't want to listen to reason. It's the same way corporation X uses data to manipulate an annual report to appease investors.

[matchewed]

Thanks for the link, Eric.

This remind me of an overheard at work.
Two women were discussing how they weren't going to be able to afford the increase cost of gasoline and how they would just have to increase their credit card debts to pay for it.  This was as I walked by with bike helmet in hand.

It seems to me that Tony just doesn't want to listen to facts.  Core inflation was ~1.6% as stated earlier.  Of the food and energy items, one was 1.4% which would bring inflation down.  The energy inflation was 3.2% which would bring the index up, but not much, and certainly not above 3% let alone 5-10%.

Do you know the women? Maybe they need to drop their children off at school, or pick up groceries on their way home from work. Not everyone can live a block away from their job or even ride a bicycle to work.

It seems to me that mpbaker22 doesn't want to listen to reason. It's the same way corporation X uses data to manipulate an annual report to appease investors.

What reason? What have you provided other than claims out of the blue? If you were to actually show where in the CPI calculation they avoid food and energy then we could actually have a discussion. Since you can't because they do calculate food and energy then we're at an impasse of belief versus fact.

Believe what you want. Inflation is not scary right now. That is not to say that it can't be scary or very damaging it very well can. I see no evidence of that happening right now.

[Tony_SS]

Thanks for the link, Eric.

This remind me of an overheard at work.
Two women were discussing how they weren't going to be able to afford the increase cost of gasoline and how they would just have to increase their credit card debts to pay for it.  This was as I walked by with bike helmet in hand.

It seems to me that Tony just doesn't want to listen to facts.  Core inflation was ~1.6% as stated earlier.  Of the food and energy items, one was 1.4% which would bring inflation down.  The energy inflation was 3.2% which would bring the index up, but not much, and certainly not above 3% let alone 5-10%.

Do you know the women? Maybe they need to drop their children off at school, or pick up groceries on their way home from work. Not everyone can live a block away from their job or even ride a bicycle to work.

It seems to me that mpbaker22 doesn't want to listen to reason. It's the same way corporation X uses data to manipulate an annual report to appease investors.

What reason? What have you provided other than claims out of the blue? If you were to actually show where in the CPI calculation they avoid food and energy then we could actually have a discussion. Since you can't because they do calculate food and energy then we're at an impasse of belief versus fact.

Believe what you want. Inflation is not scary right now. That is not to say that it can't be scary or very damaging it very well can. I see no evidence of that happening right now.

If I post a wiki link, will you believe that?

http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index

The core CPI index excludes goods with high price volatility, such as food and energy.

[Eric]

If I post a wiki link, will you believe that?

http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index

The core CPI index excludes goods with high price volatility, such as food and energy.

What does that have to do with anything?  Do the prices of goods and services change based on how the CPI is calculated?  No, they don't.  They change based on inflation.  So if the CPI doesn't measure inflation how you'd like it to, then don't use it.  Use the actual inflation numbers, which conveniently, are linked above.

[Spork]

If I post a wiki link, will you believe that?

http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index

The core CPI index excludes goods with high price volatility, such as food and energy.

I think you're arguing apples and oranges here.  BLS provides BOTH.  From your same wikipedia article: "The BLS publishes both a headline CPI which counts food and energy prices, and also a CPI for All Items Less Food and Energy, or "Core" CPI. None of the prominent legislated uses of the CPI excludes food and energy."

I've never been a huge fan of the CPI.  It's not perfect.  But it's the best we have.  It's a rather complicated thing to calculate if you think about it.

[matchewed]

Thanks for the link, Eric.

This remind me of an overheard at work.
Two women were discussing how they weren't going to be able to afford the increase cost of gasoline and how they would just have to increase their credit card debts to pay for it.  This was as I walked by with bike helmet in hand.

It seems to me that Tony just doesn't want to listen to facts.  Core inflation was ~1.6% as stated earlier.  Of the food and energy items, one was 1.4% which would bring inflation down.  The energy inflation was 3.2% which would bring the index up, but not much, and certainly not above 3% let alone 5-10%.

Do you know the women? Maybe they need to drop their children off at school, or pick up groceries on their way home from work. Not everyone can live a block away from their job or even ride a bicycle to work.

It seems to me that mpbaker22 doesn't want to listen to reason. It's the same way corporation X uses data to manipulate an annual report to appease investors.

What reason? What have you provided other than claims out of the blue? If you were to actually show where in the CPI calculation they avoid food and energy then we could actually have a discussion. Since you can't because they do calculate food and energy then we're at an impasse of belief versus fact.

Believe what you want. Inflation is not scary right now. That is not to say that it can't be scary or very damaging it very well can. I see no evidence of that happening right now.

If I post a wiki link, will you believe that?

http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index

The core CPI index excludes goods with high price volatility, such as food and energy.

Sure your claim that core CPI index excludes that is correct. But then you ignore all the other CPI calculations and the rest of the wiki article just to fit your narrative. You ignore the last sentence in the paragraph covering core CPI which states

However, on January 25, 2012, the Fed announced they would stop using the core CPI and rely instead on the Personal consumption expenditures price index

(the personal consumption expenditures price index covers energy and food). You're being disingenuous just by linking the wiki article which covers CPI-W, CPI-U, and C-CPI-U all calculations which utilize energy and food.. So don't try to paint the CPI as this bogey man when the "real" inflation is something worse.

[Tony_SS]

Glad I could clarify that to you using the wiki link.

But the BLS does still use the core CPI numbers. It's on their site: http://www.bls.gov/cpi/

The point is, real inflation to Joe Schmoes is: Heathcare, Food & Energy. People can't just cite CPI and say, look its only 1.X%. That's all. Don't have a narrative or an agenda, except to save and invest!

[daverobev]

Troll much?

Complainypants, whiney, seriously. The US is the richest country in the world; it is also highly competitive. If you're losing to inflation, "you're doing it wrong".

Lock thread/throw away the key...

[matchewed]

Glad I could clarify that to you using the wiki link.

But the BLS does still use the core CPI numbers. It's on their site: http://www.bls.gov/cpi/

The point is, real inflation to Joe Schmoes is: Heathcare, Food & Energy. People can't just cite CPI and say, look its only 1.X%. That's all. Don't have a narrative or an agenda, except to save and invest!

Can you point to where core CPI is used and reported as CPI on that page?

And to be fair you started the claims when you said -

How did you go about calculating actual inflation?  It's actually less than 3% for most people.

Most people here invest with returns far greater than inflation.

Health insurance, utilities, gas, groceries. The "official" inflation numbers given by the US govt do not include food or energy prices.

I will become an investment ninja when I'm finished paying off my remaining debt, otherwise I can't justify investing money when I have to pay interest on debt, even if its 1.9% interest.

The official numbers do include food and energy. When looking at the June report (http://bls.gov/news.release/pdf/cpi.pdf) it clearly states that it is the CPI-U. Which for all items for the last 12 months is 1.8%.

[starbuck]

People can't just cite CPI and say, look its only 1.X%. That's all. Don't have a narrative or an agenda, except to save and invest!

I totally agree. The BLS collects and publishes A LOT of inflation data, so saying 'oh the CPI is 1.8%' is very over simplified. The CPI program publishes inflation indexes for a lot of areas, including food, utilities, medical care, transportation, etc. The inflation number that gets throw around on the news is the most broad measure of inflation, the CPI for all urban consumers, which is a national measure. The BLS publishes REGIONAL measures of inflation, so I'd always suggest looking at your own geographic area for much more useful info. For the latest CPI-U numbers - national is +1.8%, but the Midwest is +2.2%. Northeast? +1.5%.


Also, here's a good BLS article that's about how food prices have changed over the last century. Charts 1 and 2 really illustrate what people are trying to explain here, and shows the difference between measures of inflation for all items, food, energy, and all items w/o food & energy.


And don't forget, the plural of anecdote is not anecdata. Yay data and statistics!
 

[matchewed]

People can't just cite CPI and say, look its only 1.X%. That's all. Don't have a narrative or an agenda, except to save and invest!

I totally agree. The BLS collects and publishes A LOT of inflation data, so saying 'oh the CPI is 1.8%' is very over simplified. The CPI program publishes inflation indexes for a lot of areas, including food, utilities, medical care, transportation, etc. The inflation number that gets throw around on the news is the most broad measure of inflation, the CPI for all urban consumers, which is a national measure. The BLS publishes REGIONAL measures of inflation, so I'd always suggest looking at your own geographic area for much more useful info. For the latest CPI-U numbers - national is +1.8%, but the Midwest is +2.2%. Northeast? +1.5%.


Also, here's a good BLS article that's about how food prices have changed over the last century. Charts 1 and 2 really illustrate what people are trying to explain here, and shows the difference between measures of inflation for all items, food, energy, and all items w/o food & energy.


And don't forget, the plural of anecdote is not anecdata. Yay data and statistics!

I don't disagree with what you're saying. You're talking about the applicability of the CPI numbers. And that's a valid point. The discussion was whether the CPI includes information on food and energy, which it does. The discussion was on the validity of the numbers and I'd have to say that unless you've got some other source with the same resources and transparency you'll just have to take the numbers as valid.

[WageSlave]

I started reading, then switched to skimming, as it seemed like it was going in circles.

But let's ask a more fundamental question: say there's no reasonable measure of inflation on one of your line items, such as health care, and from your personal observation, it's gone up dramatically over the last few years.

As that is presumably not your only expense, your "personal observed" inflation won't be as high as that single line item.

Not to mention... is it possible to shop around for competitive products/services when you see a major price increase?  I lowered my electrical costs by switching from ComEd to a different supplier.  Not a major savings, but definitely tangible.

As for your savings: once you have a sufficiently big emergency fund, you shouldn't be keeping any extra money in a savings account or money market or other ultra-low interest vehicle.  Doing so isn't conservative, it's simply foolish.  Yes, the capital you need to be extremely liquid (emergency fund, house down payment, payroll expenses for your small business, etc) will always be subject to the drag of interest.  It's an implicit "tax" you pay for the privilege of having that liquidity.

A balanced investment portfolio should weather inflation pretty well.  Of course runaway inflation can still kill a balanced portfolio, but there are other risks to a balanced portfolio as well.  If you truly believe that runaway inflation is an out-sized risk, then adjust your portfolio accordingly.

Still, over the long run, stocks have generally beaten inflation.  There's also TIPS and Series I Bonds.  Real estate is generally a good inflation hedge.  Even better are income properties (rental units)---if you mortgage them (with a fixed rate mortgage), then inflation actually helps you (paying back the loan with inflated dollars).

I consider myself very conservative in my personal finances, and try to account for every possible contingency.  But it's simply not possible---there comes a point when you start thinking investing in a bunker, guns/ammo and non-perishable foods makes sense.  I don't think you want to be that guy.  I'm afraid that's the mental place where you'll end up if you start thinking the CPI is a big conspiracy.

[mpbaker22]

Thanks for the link, Eric.

This remind me of an overheard at work.
Two women were discussing how they weren't going to be able to afford the increase cost of gasoline and how they would just have to increase their credit card debts to pay for it.  This was as I walked by with bike helmet in hand.

It seems to me that Tony just doesn't want to listen to facts.  Core inflation was ~1.6% as stated earlier.  Of the food and energy items, one was 1.4% which would bring inflation down.  The energy inflation was 3.2% which would bring the index up, but not much, and certainly not above 3% let alone 5-10%.

Do you know the women? Maybe they need to drop their children off at school, or pick up groceries on their way home from work. Not everyone can live a block away from their job or even ride a bicycle to work.

It seems to me that mpbaker22 doesn't want to listen to reason. It's the same way corporation X uses data to manipulate an annual report to appease investors.

Doesn't it seem more than a tad bit asinine that I give a few examples of how to lower expenses if inflation is cutting you up.  And your response is that not everyone can do those few examples.  Is it not possible you can find some other way to save money?
I don't live a block away from work, and I am lucky that my office has showers.  But thanks for de-legitimizing my 13 mile bike ride commute!
As for your examples for why the women wouldn't be able to ride their bikes (given there are showers):  Bike trailers are made for carrying children, and there are a number of ways to carry groceries.

Next ...

[dragoncar]

I don't think CPI is all that bad:

http://www.mymoneyblog.com/inflation-cpi-vs-bpp.html

[Tony_SS]

People can't just cite CPI and say, look its only 1.X%. That's all. Don't have a narrative or an agenda, except to save and invest!

I totally agree. The BLS collects and publishes A LOT of inflation data, so saying 'oh the CPI is 1.8%' is very over simplified. The CPI program publishes inflation indexes for a lot of areas, including food, utilities, medical care, transportation, etc. The inflation number that gets throw around on the news is the most broad measure of inflation, the CPI for all urban consumers, which is a national measure. The BLS publishes REGIONAL measures of inflation, so I'd always suggest looking at your own geographic area for much more useful info. For the latest CPI-U numbers - national is +1.8%, but the Midwest is +2.2%. Northeast? +1.5%.


Also, here's a good BLS article that's about how food prices have changed over the last century. Charts 1 and 2 really illustrate what people are trying to explain here, and shows the difference between measures of inflation for all items, food, energy, and all items w/o food & energy.


And don't forget, the plural of anecdote is not anecdata. Yay data and statistics!

Well said. And here is another great article I found concerning the overall big picture of retirement vs inflation, and even the MMM makes a comment below it.

http://renewablewealth.com/articles/most-retirement-advice-is-worse-than-useless-part-ii-inflation/

[ghatko]

Thanks for the link, Eric.

This remind me of an overheard at work.
Two women were discussing how they weren't going to be able to afford the increase cost of gasoline and how they would just have to increase their credit card debts to pay for it.  This was as I walked by with bike helmet in hand.

It seems to me that Tony just doesn't want to listen to facts.  Core inflation was ~1.6% as stated earlier.  Of the food and energy items, one was 1.4% which would bring inflation down.  The energy inflation was 3.2% which would bring the index up, but not much, and certainly not above 3% let alone 5-10%.

Do you know the women? Maybe they need to drop their children off at school, or pick up groceries on their way home from work. Not everyone can live a block away from their job or even ride a bicycle to work.

It seems to me that mpbaker22 doesn't want to listen to reason. It's the same way corporation X uses data to manipulate an annual report to appease investors.

I just wanted to note that I am a woman, who has been bike commuting to work. My commute is 11.6 km (7.2 mi) each way, and that includes 3.5 km (2.2 mi) pulling my daughter to daycare in a bike trailer. I have also been known to pick up groceries on the way home, but generally we try to meal plan and get everything we need on the weekend when we can take a short ride to the store. Of course it would be generally easier to just drive, but I made a decision that it was important to me to bike, which saves us wear and tear on the car, gas money, and improves my health. It's always a choice!

[Malloy]

I find it really frustrating to try and save, when admitted inflation is 2% and actual is more like 5-10% every year. The cost of living is going nuts, gas, healthcare, etc.

I make a whopping .5% on my savings. That's not enough to keep up with inflation. Do you all just eat it? What percentage do you keep liquid and what do you risk?

 

When I read what the collective commentariat has discussed, I'm pretty persuaded  that, regardless of how you calculate inflation (with or without food and energy), inflation is hovering around 2%.  However, I'm not sure those facts are going to be all that persuasive for someone who holds runaway inflation as part of a general political worldview.

I'm pretty new around here (hello all!), and I don't mean to steer the conversation out of bounds, but it's been my observation that someone's opinion on inflation is a pretty reliable marker of political leaning.  As such, it's a belief that's held in a different part of the brain than, say, an opinion on whether 2+2=4.  That's not a perfect analogy, because simple math is not subject to reasoned debate, and there is actually some reasoned debate about how to calculate inflation.  But, my point is that someone who holds the belief as part of a general political worldview may be more difficult to convince, even in the face of facts and sources that look convincing to me.

Tony_SS-do you have any citations or credible sources that back you up on that 5-10% number?  Your main argument is that the core CPI doesn't include food and energy.  However, I think that the evidence of other measures of CPI that do include food and energy should be persuasive.  What am I missing?  Wouldn't you have to show a mismatch between estimated inflation with food and energy and without to prove your point?  Because the cited numbers don't really show the mismatch you say is there.

[Tony_SS]

I'm pretty new around here (hello all!), and I don't mean to steer the conversation out of bounds...

You don't mean to steer, but you will by calling me stupid and readying yourself to crucify me over my supposed "political worldview"? Bravo. Great 3rd post.

[Eric]

I'm pretty new around here (hello all!), and I don't mean to steer the conversation out of bounds...

You don't mean to steer, but you will by calling me stupid and readying yourself to crucify me over my supposed "political worldview"? Bravo. Great 3rd post.

I didn't read anything calling you stupid or crucifying you.  Maybe you need to re-read from a neutral standpoint?  Asking for some sources to back up your claims seems like a pretty reasonable request to me.

[Jamesqf]

I make a whopping .5% on my savings. That's not enough to keep up with inflation. Do you all just eat it? What percentage do you keep liquid and what do you risk?

So tell me this: just how much do you make on money you spend (over and above necessities) instead of saving?

Now as others have pointed out, money invested in the market (through good mutual funds) generally returns more than inflation, over the long term.  Likewise, if the cost of a particular good - say energy - increases faster than inflation, you look for ways to reduce your use of that good.  (That's simple free marked economics.)  If you spend too much on gas, look at driving a more fuel-efficient vehicle, driving less, giving up the gas-powered toys (like my friends who sold their ski boat & bought a pair of kayaks), etc.  If heating & cooling costs too much, insulate your house better.  And so on.

And if the thought process doesn't convince you that your inflation complaints are a crock, we have lots of practical examples here, from MMM on down, of people who are living comfortably while accumulating nice stashes.

[pom]

The main expense is rent/housing for most people (32% of expenditures according to the BLS which is in line with my own budget). On my rental property in the US, I increased rent from 1350 to 1600 in the last 6 years : 2.8% a year. And that is mainly because I started with a low rent when I left the US because at first I was renting to a friend.

To double check, I looked at the rent of the first place I rented in 1996 for $850: 1br at Colony Oaks in North Brunswick, NJ. It now rents for $1270; an increase of 2.4% a year.

My first car, a chevy cavalier cost me 12k in 1996. I looked at the last cavalier issued in 2005 ... the same price. Then I looked at more recent entry-level cars, like the sparks and it is more or less the same price still. So when the BLS says that the annual increase has been 0.7% in the last 10 years, that seems about right to me.

Away from home food is about 5% of the CPI. Has restaurant prices doubled in the last 10 years? Not from what I remember. Lets look at the Big Mac Index that is reported by The Economist. In 2002, a Big Mac cost $2.71 in average in the USA. It now cost $4.33 so so it was about +60% (4.8% a year) in that timeframe. The BLS has food inflation at 2.9% during that same period so they may be low on that account.

http://bigmacindex.org/bmi-data-text-format.html

Gas is 5% of expenditure. Pump price was 1.45 in 2003 and is now 3.69 so an increase of 9.5% a year vs 8.9% from the BLS

So from my not-very-scientific analysis

Housing inflation (40% of basket): about 2.5% vs BLS at 2.0%
Car price inflation (5% of basket): about 0% vs BLS at 0.7%
Restaurant inflation (5% of basket): about 4.8% vs BLS at 2.9%
Gaz (5% of basket): about 9.5% vs BLS 8.9%
Weighted average difference: i am about 0.5% higher than the BLS

So this is nothing like the 5-10% that you often see in the far-left/far-right news channel. Looks to me like gas is the only thing that went up by that much but I would not know because I take public transportation or bike or walk to work so that gas is less than 0.5% of mu budget.

Anyway, if anyone wants to continue the analysis line by line using the last 10 years as a baseline so that we can show a complete picture, knock yourself out.

[Tony_SS]

^ I like your Big Mac Index, that is near 5%. I'm not trying to cherry pick, but fast food price is a good indicator.

I don't have much time today, but I've been running my business for over 6 years. The cost of one item for example has risen from .89 each to 1.59 each. That is 73% over 7 years = 10.4% a year. Another item was .77 per piece, now 1.05 over 6 years = 6.06% increase per year. Couple examples for me personally there.

I'm sure alot of people will take issue with this here too, but according to this side, if the CPI was calculated today the exact same way is was in 1980 you'd have ~10% inflation. The methods are changed and there are links on this page outlining that. Take if for what its worth to you. I'm sure some will dismiss is a conspiracy theory. lol. I call it creative manipulation. My clients have done this constantly with their annual reports, even on the fly. It was pretty amusing.
http://www.shadowstats.com/alternate_data/inflation-charts

I'm not complaining about it. I'm only saying the CPI is a broad term that people like to throw around without knowing much about it. Your results will vary! Side issue anyway. The problem is that I'm saving and not investing. I'm realizing that. That problem will be solved as soon as this little debt emergency is clear.

[Eric]

I don't have much time today, but I've been running my business for over 6 years. The cost of one item for example has risen from .89 each to 1.59 each. That is 73% over 7 years = 10.4% a year. Another item was .77 per piece, now 1.05 over 6 years = 6.06% increase per year. Couple examples for me personally there.

FYI - Your math on this is wrong.  73% over 7 years is NOT 10.4% per year.  10.4% per year would be $1.78.  --   $.89 * 1.104⁷ = $1.78.

Instead you want $.89 * x⁷ = $1.59
x⁷=1.7865
x=1.086
So it's actually 8.6% per year in this example.

[Spork]

I'm sure alot of people will take issue with this here too, but according to this side, if the CPI was calculated today the exact same way is was in 1980 you'd have ~10% inflation. The methods are changed and there are links on this page outlining that.

This is absolutely true.  They did change the methods of calculations.  The main reason is that the old method just wasn't that great and they were trying to improve it.  And, for that reason you absolutely can't compare old CPI to current CPI ... they're totally different numbers.

Again: I'm not particularly a fan of CPI... but it's the best we've got.  Trying to analyze the cost of every stinking thing in every stinking market and apply actual usable numbers to it is a really really hard thing.  If you're going to make decisions to meddle in the economy, you have to have a number.  (I'm more of a free market capitalist, so I don't particularly like the meddling in the first place... but if that's a forgone conclusion, you might as well have better numbers.)

Now: I'm not altogether convinced that the Fed's QE projects won't have long term negative effects.  Only time will tell.  So far, it seems to not have caused any serious issues.  I sincerely hope that remains true, but my cynical nature tends to doubt it long term.

[Malloy]

I'm pretty new around here (hello all!), and I don't mean to steer the conversation out of bounds...

You don't mean to steer, but you will by calling me stupid and readying yourself to crucify me over my supposed "political worldview"? Bravo. Great 3rd post.

Sorry that I came off as ready to crucify you.  Not what I meant at all.  Thanks for the additional info on where you were getting the numbers from.  I was trying to address all the back and forth on the including food/not including food CPI, but you had an outside source for your numbers.  I was just under the impression that the misunderstanding was within the CPI itself as output by the BLS, but your view is that the CPI is calculated incorrectly based on its changes to methodology over time. 

I am going to stick by my guns with my anecdata on inflation views as political signalling, and I certainly don't think it's worth crucifying anyone for or is analogous to calling anyone stupid.  Everyone I know who is worried about inflation is pretty conservative/libertarian and sees it as an inevitable result of quantitative easing.  I certainly don't think these people are stupid, even though I don't happen to agree.