Author Topic: Mustachian inflation rate  (Read 10814 times)

nobodyspecial

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Mustachian inflation rate
« on: June 12, 2015, 03:57:10 PM »
Prompted by the boglehead zero growth thread - is the inflation rate higher for MMM?

The official inflation rate (Retail Price Index, Consumer Price index) in most countries is a lie.
Generally ignoring fuel and housing inflation but includes the price drops on consumer toys

Since a mustachian has a paid-for house and uses a bicycle to avoid buying gas I wonder if this offsets not benefiting from the price drops of a 40" flat screen TV?  It seems to me that the basic staple food prices have risen 10-20% in the last year - or 10x the official inflation rate.


« Last Edit: June 14, 2015, 10:34:10 AM by nobodyspecial »

marty998

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Re: Mustachian inflation rate
« Reply #1 on: June 12, 2015, 04:01:05 PM »
I haven't noticed food being more expensive. But for me, local rates, water, power, insurance, car rego.... bills just keep going up in the order of 7-10% each year.

Inflation is supposed to be 2%...

Frugancial Advisor

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Re: Mustachian inflation rate
« Reply #2 on: June 12, 2015, 10:46:30 PM »
The CPI (Consumer Price Index) is almost irrelevant to a Mustachian.

As much as the government would like you to believe that the average increase of goods is 2%, the reality is that we are paying significantly more for everyday staples which fluctuate economically.

When you analyze gas, food, and housing, you'll quickly see that we are increasing our essential goods much closer to 5% per year. This is precisely why we are approaching a "housing bubble" and simultaneously earning less than we did 10 years ago in jobs that are no longer guaranteeing either security or a pension.


mohawkbrah

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Re: Mustachian inflation rate
« Reply #3 on: June 14, 2015, 04:04:25 AM »
i honestly stopped paying attention to inflation rates. when your expenses are so low it really becomes a mute point to be honest


*extreme early retirement* advocate here :)

brooklynguy

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Re: Mustachian inflation rate
« Reply #4 on: June 14, 2015, 05:41:01 AM »
when your expenses are so low it really becomes a mute point to be honest

I disagree (assuming you meant "moot point", but I also disagree that it is a "mute point", because, as I said in the linked post, it gets voiced pretty often in early retirement circles).

TomTX

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Re: Mustachian inflation rate
« Reply #5 on: June 14, 2015, 08:49:16 AM »
Power rates dropped 5% for me this year, and we got capital credits* back for about a half month of service.

*It's a power co-op. If they have more money than they need for capital improvements, they give it back to the members.

Scandium

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Re: Mustachian inflation rate
« Reply #6 on: June 14, 2015, 09:11:00 AM »
when your expenses are so low it really becomes a mute point to be honest

I disagree (assuming you meant "moot point", but I also disagree that it is a "mute point", because, as I said in the linked post, it gets voiced pretty often in early retirement circles).
It seems that when most of your spending is on essentials inflation is more important, not less. As we saw in 2009 regular folks will stop buying cars and TVs. Now if you weren't buying those in the first place..

Also, lol at "mute point", good one.

Cassie

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Re: Mustachian inflation rate
« Reply #7 on: June 14, 2015, 09:43:57 AM »
Food has went up a lot in the past year where we live. Before I retired from the state I saw my pay decrease by $10,000/year. Now after leaving 3 years ago state employees are finally seeing their pay get restored.  Yes inflation matters.

Indexer

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Re: Mustachian inflation rate
« Reply #8 on: June 14, 2015, 11:34:01 AM »
Prompted by the boglehead zero growth thread - is the inflation rate higher for MMM?

Inflation is going to be different for everyone.  Poor people notice gas/food price changes more than rich people as a % of their income.  Poor people driving trucks will notice it a whole lot more than a rich person driving a Tesla.  Older retirees tend to notice healthcare inflation more.  Someone in college will notice college more.  If your house is paid for you probably won't see housing inflation at all except for when they increase the tax value and the property taxes. 

As a still working mustachian you are spending a smaller % of your income on just about every category compared to a normal person.  So you shouldn't experience inflation like everyone else. If you are saving 50% of your income and inflation is 2% then inflation compared to your income will be 1% which is likely less than any annual increase in income so you probably won't notice it at all.  As a retired mustachian your income is your annual portfolio withdrawal/pensions/rentals/etc.  As a retired mustachian your expenses are lower than the average american, but your income also likely has less wiggle room than a working mustachian who can spend more/save less if they absolutely have to.  So lets stick to the already retired mustachian.  While not on a 'fixed' income a 4% SWR is likely treated as a fixed income by the early retiree.

Retired mustachian:
Gas= probably significantly lower than average.
Car= probably won't notice to much.
Housing= likely paid for. 
Food= as a % of your annual spending this is probably pretty big because everything else is so low.  You will probably feel any major food inflation.
Consumer goods= LOL

Any thoughts on that?

mr_orange

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Re: Mustachian inflation rate
« Reply #9 on: June 14, 2015, 11:59:02 AM »
Shadowstats does a pretty good job of reporting accurate inflation data:

http://www.shadowstats.com/alternate_data/inflation-charts

The posts above about everyone experiencing inflation rates differently are good.  You also need to factor in the fact that goods become better and more efficient over time and thus they're not really apples to apples.  Cars of today do much more than a replacement vehicle from 30 years ago did.  This is true of most other consumer goods too. 

Housing is certainly more expensive today in my neck of the woods.  Food is definitely more expensive than it was 5 years ago too. 

Bob W

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Re: Mustachian inflation rate
« Reply #10 on: June 14, 2015, 12:29:08 PM »
Shadowstats does a pretty good job of reporting accurate inflation data:

http://www.shadowstats.com/alternate_data/inflation-charts

The posts above about everyone experiencing inflation rates differently are good.  You also need to factor in the fact that goods become better and more efficient over time and thus they're not really apples to apples.  Cars of today do much more than a replacement vehicle from 30 years ago did.  This is true of most other consumer goods too. 

Housing is certainly more expensive today in my neck of the woods.  Food is definitely more expensive than it was 5 years ago too.

Thanks for mentioning shadowstats! 

The government has an incentive to keep the CPI reported very low since SS payments and increases in Medicare are tied to it.   It is not based in what a rational person would consider reality.     There are several Government inflations measures and the CPI is just a slice of that.  Unemployment rate is likewise not based in reality. 

Inflation is however the biggest tax we all pay.  (yes even Alan Greenspan and Ben Bernanke consider it a tax).

Consider this -- You own a paid for house of 400K,  stocks of 2,000,000  --- even if inflation is the fake 2%,  the value of your assets diminished by $48,000 whether the markets went up or down that year.   

So if someone like MMM earns 40K in income he deludes himself into believing he lives in a low tax environment.  When in fact he paid in excess of 110% in taxes that are hidden and very difficult for many people to understand.

Most MMM readers will blow this off by saying that inflation is offset by rising housing prices and stock markets.  When in fact the real value of the money you can sell your house or stocks for diminishes each year even when your prices go down.  Worst case scenario for mustachians is when real estate values and stock prices go down or stay flat for a decade while inflation continues on its merry way.  (well actually it could be way worse if the government decides the money in the bank and stock accounts is now their money and that you need to pay a federal real estate tax)a

It has very little to do with the price of cars or groceries for MMM readers.   That is why people who would otherwise be consider conservative savers (MMM readers) are forced into the high risk stock market in an attempt to keep up with or beat inflation.   

It would be a much cleaner system, in my opinion, if federal taxes were done away with altogether and the government simply printed whatever it wanted to spend each year.  (not borrow -- print)  That would completely tax the underground economy and companies would work their asses off to find cost savings to minimize price increase in their products. 

Inflation would settle in around 5-7%, which is a reasonable tax rate spread across everyone and there would be no need for funny business with tax codes etc...

It would also do away with the government spending 500 billion per year on debt service.   

mr_orange

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Re: Mustachian inflation rate
« Reply #11 on: June 14, 2015, 12:44:45 PM »
I agree that inflation is a subtle tax on everyone.  It behooves the gov-mint to run a small inflation rate each year too so they can finance their spending addiction for close to free in real terms. 

That is why I think it is sub-optimal to pay off debt on real estate investments provided they're financed with FNMA financing at reasonable rates.  If you're paying 5% or less for your real estate debt and real inflation is around 5% the real cost of the debt is ZERO.  It is a pretty safe bet to me that the gov-mint will continue with policy to keep inflation slightly positive and thus making my balance sheet look like theirs seems like a pretty safe bet to me. 

Instead of complaining about how things are or worrying about them folks are better-served to recognize them and take advantage of policy as best as they can. 

skyrefuge

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Re: Mustachian inflation rate
« Reply #12 on: June 15, 2015, 12:56:40 PM »
It seems to me that the basic staple food prices have risen 10-20% in the last year - or 10x the official inflation rate.

BLS creates an "official inflation rate" for almost every category you can think of, so if you're curious about the inflation for basic staple food prices, you can just look up that particular data.

http://www.bls.gov/news.release/cpi.t01.htm

Unfortunately, the BLS still doesn't agree with your rigorous analysis, and puts the inflation rate for groceries at 1.3%. Though "Meats, poultry, fish, and eggs" is up a comparatively-whopping 3.9% (and it's balanced by "Cereals and bakery products" being up only 0.9%).

Shadowstats does a pretty good job of reporting accurate inflation data:

http://www.shadowstats.com/alternate_data/inflation-charts

Oh boy. http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/17/the-intellectual-cesspool-of-the-inflation-truthers/

mr_orange

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Re: Mustachian inflation rate
« Reply #13 on: June 15, 2015, 01:21:33 PM »
Oh boy. http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/17/the-intellectual-cesspool-of-the-inflation-truthers/

Nice article...thanks for sharing.  If you look at my original post you left this part out:

The posts above about everyone experiencing inflation rates differently are good.  You also need to factor in the fact that goods become better and more efficient over time and thus they're not really apples to apples.  Cars of today do much more than a replacement vehicle from 30 years ago did.  This is true of most other consumer goods too. 

Which pretty much mirrors what the article says.  It is difficult to measure things this complicated and make a good judgement about "replacement" goods. 

And yeah....there is a lot of politics involved here.  I started a thread on another forum called "Still Waiting For Hyperinflation" that is about 14 or more pages long now.  I update it every few months to point out that the hyperinflation alarmists are still wrong. 

I do, however, think that the gov-mint has a vested interest in reporting lower inflation data and will revise how they do it in a way that is favorable for them every so often. 

forummm

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Re: Mustachian inflation rate
« Reply #14 on: June 15, 2015, 01:27:41 PM »
I agree that inflation is a subtle tax on everyone.  It behooves the gov-mint to run a small inflation rate each year too so they can finance their spending addiction for close to free in real terms. 

That is why I think it is sub-optimal to pay off debt on real estate investments provided they're financed with FNMA financing at reasonable rates.  If you're paying 5% or less for your real estate debt and real inflation is around 5% the real cost of the debt is ZERO.  It is a pretty safe bet to me that the gov-mint will continue with policy to keep inflation slightly positive and thus making my balance sheet look like theirs seems like a pretty safe bet to me. 

Instead of complaining about how things are or worrying about them folks are better-served to recognize them and take advantage of policy as best as they can. 

Huh? Among other reasons, the government targets a small amount of inflation because 1) too much inflation is bad for the economy, 2) deflation is worse for the economy, and 3) it's really hard to hit an economic target like inflation precisely, so aiming for a small amount of it creates an acceptable range of actual inflation outcomes.

And the government absolutely has to pay higher interest rates because of the inflation--that's priced into what investors are willing to buy the bonds for. Investors know what the inflation target is. When inflation was going crazy in the 70's, Treasuries were yielding  in the double digits. That's a huge expense to the Treasury. Only with historically low interest rates (i.e. what we have now) can the government finance itself cheaply. Just like you and I can finance things cheaply. When interest rates go back up, Treasury rates will go back up too.

DarinC

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Re: Mustachian inflation rate
« Reply #15 on: June 15, 2015, 01:55:09 PM »
It's the Fed that creates and destroys money, not the US government.

http://www.independent.com/news/2012/feb/25/how-us-federal-reserve-creates-and-destroys-money/

The banking system as a whole is what drives inflation.

http://www.federalreserve.gov/faqs/money_12853.htm

Which is also kind of ridiculous, but not national government printing money levels of ridiculous.

mr_orange

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Re: Mustachian inflation rate
« Reply #16 on: June 15, 2015, 01:58:57 PM »
I agree that inflation is a subtle tax on everyone.  It behooves the gov-mint to run a small inflation rate each year too so they can finance their spending addiction for close to free in real terms. 

That is why I think it is sub-optimal to pay off debt on real estate investments provided they're financed with FNMA financing at reasonable rates.  If you're paying 5% or less for your real estate debt and real inflation is around 5% the real cost of the debt is ZERO.  It is a pretty safe bet to me that the gov-mint will continue with policy to keep inflation slightly positive and thus making my balance sheet look like theirs seems like a pretty safe bet to me. 

Instead of complaining about how things are or worrying about them folks are better-served to recognize them and take advantage of policy as best as they can. 

Huh? Among other reasons, the government targets a small amount of inflation because 1) too much inflation is bad for the economy, 2) deflation is worse for the economy, and 3) it's really hard to hit an economic target like inflation precisely, so aiming for a small amount of it creates an acceptable range of actual inflation outcomes.

Agree...not sure how this is any different than what I wrote above. 

Quote
And the government absolutely has to pay higher interest rates because of the inflation--that's priced into what investors are willing to buy the bonds for. Investors know what the inflation target is. When inflation was going crazy in the 70's, Treasuries were yielding  in the double digits. That's a huge expense to the Treasury. Only with historically low interest rates (i.e. what we have now) can the government finance itself cheaply. Just like you and I can finance things cheaply. When interest rates go back up, Treasury rates will go back up too.
Paying higher rates with a higher set of inflation numbers means they're still borrowing for close to free.  I never claimed that rates are fixed. 

nobodyspecial

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Re: Mustachian inflation rate
« Reply #17 on: June 15, 2015, 02:05:32 PM »
Quote
Unfortunately, the BLS still doesn't agree with your rigorous analysis, and puts the inflation rate for groceries at 1.3%.
I'm in Canada so the big drop in the loonie doesn't help.

Buying only no-label store brand in the biggest "cheap" supermarket chain here:
Dairy seems to have gone up the most, butter and cheese=25%, tinned vegetable staples >10% and tortilla/wraps/chips > 20%
I'm veggie and cook a lot so I don't know about prepared food.

Salad prices have gone through the roof but that may be due to the California drought.
The weather here has been so good I have more home grown salad than I can eat.



theoverlook

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Re: Mustachian inflation rate
« Reply #18 on: June 15, 2015, 02:06:29 PM »
the gov-mint

Definitely a technique to make sure your posts are taken seriously.

Scandium

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Re: Mustachian inflation rate
« Reply #19 on: June 15, 2015, 02:12:40 PM »
Invoking the Watergate argument: if the government can't cover up a couple of guys breaking into a hotel room, how in the world could they successfully hide or misrepresent the historic prices of bread, milk and gas, which anyone can see every day!?

Gone Fishing

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Re: Mustachian inflation rate
« Reply #20 on: June 15, 2015, 02:59:36 PM »
All said and done, I don't think we've experienced a higher rate of inflation vs the general public over the past 10 years, but I think it may feel like inflation hits mustachians a little harder than the general public because the average consumer can often substitute a lower priced option (even though many don't) whereas the mustachian has probably already chosen the lowest price (or best value) option and doesn't have much room to downsize. 

I don't keep detailed records but here are a few of my observations on inflation as it has applied directly to us over the past 10 years or so:

Health insurance- the company paid premiums actually have not changed much over the past 10 years, but deductibles and copays have doubled or tripled in some cases, significantly increasing out of pocket expenses.  The one bright spot has been a few maintainance drugs going generic.

Property taxes- Ours have gone up nearly 50% over the past 10 years, but they had room to run as low they were, and still are, pretty low by national standards.

Tuition room and board at my alma mater is running nearly 3x what I paid 15 or so years ago.

Our per-person food expense has not changed that much.

Increases in fuel, oil, and tires have made a significant impact due to long anti-mustachian commutes, but even after ER I anticipate those miles will be directed towards travel and expenses will be similar. 

I can't really think of too much that costs us less than it used to.  Sure, the cost of cell phones, high speed internet, laptops and flat screen TVs has come down, but we really never bought much of that stuff anyway.   


beltim

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Re: Mustachian inflation rate
« Reply #21 on: June 15, 2015, 03:04:41 PM »
The official inflation rate (Retail Price Index, Consumer Price index) in most countries is a lie.
Generally ignoring fuel and housing inflation but includes the price drops on consumer toys

You should get your information from better sources.  Inflation rates are available that exclude fuel or housing, but no one outside Wall Street ever uses those numbers.  The CPI used for Social Security, for example, most definitely includes them.

beltim

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Re: Mustachian inflation rate
« Reply #22 on: June 15, 2015, 03:07:51 PM »
Shadowstats does a pretty good job of reporting accurate inflation data:

http://www.shadowstats.com/alternate_data/inflation-charts

The posts above about everyone experiencing inflation rates differently are good.  You also need to factor in the fact that goods become better and more efficient over time and thus they're not really apples to apples.  Cars of today do much more than a replacement vehicle from 30 years ago did.  This is true of most other consumer goods too. 

Housing is certainly more expensive today in my neck of the woods.  Food is definitely more expensive than it was 5 years ago too.

If by "accurate" you mean "take the official numbers and add an arbitrary constant in order to sell a newsletter" then sure.  But most people don't use the word accurate that way.  Oh, and the founder of shadowstats has admitted that's all he does:
http://azizonomics.com/2013/06/01/the-trouble-with-shadowstats/

beltim

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Re: Mustachian inflation rate
« Reply #23 on: June 15, 2015, 03:12:38 PM »
Inflation is however the biggest tax we all pay.  (yes even Alan Greenspan and Ben Bernanke consider it a tax).

Consider this -- You own a paid for house of 400K,  stocks of 2,000,000  --- even if inflation is the fake 2%,  the value of your assets diminished by $48,000 whether the markets went up or down that year.   

So if someone like MMM earns 40K in income he deludes himself into believing he lives in a low tax environment.  When in fact he paid in excess of 110% in taxes that are hidden and very difficult for many people to understand.

I also frequently like to use ridiculous incomparable numerators and denominators.  Gasoline taxes in my locality are 37% of the price of an orange.  My sales tax I'm pretty sure is calculated as 0.1% of the amount in my 401k.  And my state is running a budget deficit equal to FOUR MILLION percent of the SNAP benefits it gives out.  Or is it 120% of the cost of a Gulfstream jet?  I always forget that one...

nobodyspecial

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Re: Mustachian inflation rate
« Reply #24 on: June 15, 2015, 03:37:09 PM »
Sure, the cost of cell phones, high speed internet, laptops and flat screen TVs has come down, but we really never bought much of that stuff anyway.
That was the reason for my original post. In most inflation calculations basic stuff goes up in price but consumer "durables"  drop - so inflation is low.
If you only buy basics then inflation is probably higher.



mr_orange

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Re: Mustachian inflation rate
« Reply #25 on: June 15, 2015, 03:40:40 PM »
Sure, the cost of cell phones, high speed internet, laptops and flat screen TVs has come down, but we really never bought much of that stuff anyway.
That was the reason for my original post. In most inflation calculations basic stuff goes up in price but consumer "durables"  drop - so inflation is low.
If you only buy basics then inflation is probably higher.

Yup....it depends on what your "basket of goods" is and your consumption patterns.  I have no data to support it objectively, but just solely looking on the price of what we pay at the store now I would say food prices have gone up in the past 5 years. 

It doesn't do a whole lot of good to include consumer items if you don't really purchase many of them.  It would be cool to be able to tweak the billion prices study linked in the articles above to your personal situation somehow. 

TheOldestYoungMan

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Re: Mustachian inflation rate
« Reply #26 on: June 15, 2015, 03:51:42 PM »
I eat alot of eggs since I went mustachian.  It is the one staple product that I note the price of every time I buy it, because there is a huge per unit variation, and I have to sit their with my damn phone calculation, because dividing by twelve is the oldest marketing ploy in the world.

Usually, I can get a large or extra large egg for 21 cents per unit.  For over a year now, the only time I've had to pay more than that was when they were out of the 18ct or higher packages, or out of the cheaper eggs.

Last weekend I was buying eggs for the first time in a month, and the price was up to 30 cents per unit, with the brown eggs "organics" going for closer to 45 cents!

I called the manager over and bartered over how many eggs I needed to buy to get the price down and we settled on five dozen eggs for 22cents each.

So with a little hassle, my eggflation stands at 1 cent per unit, or a little less than 5% increase YOY.  Everyone else at the store was paying eggflation of damn near 50%.

Mustachian won't quit yo.

Bob W

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Re: Mustachian inflation rate
« Reply #27 on: June 15, 2015, 03:59:32 PM »
Inflation is however the biggest tax we all pay.  (yes even Alan Greenspan and Ben Bernanke consider it a tax).

Consider this -- You own a paid for house of 400K,  stocks of 2,000,000  --- even if inflation is the fake 2%,  the value of your assets diminished by $48,000 whether the markets went up or down that year.   

So if someone like MMM earns 40K in income he deludes himself into believing he lives in a low tax environment.  When in fact he paid in excess of 110% in taxes that are hidden and very difficult for many people to understand.

I also frequently like to use ridiculous incomparable numerators and denominators.  Gasoline taxes in my locality are 37% of the price of an orange.  My sales tax I'm pretty sure is calculated as 0.1% of the amount in my 401k.  And my state is running a budget deficit equal to FOUR MILLION percent of the SNAP benefits it gives out.  Or is it 120% of the cost of a Gulfstream jet?  I always forget that one...

You may have missed the part about deluding oneself?    My point is that inflation is a tax.   Most people fail to realize this and thus put their money into CDs paying less than 1%.   Mustachians appear to grasp inflation as a concept but often miss the tax part of it.  Sadly we are forced into investments that otherwise would appear too risky in order to try to keep up with inflation. 

Inflation is a tax that is "real" and unavoidable simply by buying real estate or stocks.  I'm not opposed to it.   

In fact I believe it should be the only tax and that the Government should merely print the money instead of playing the ridiculous banking shell game and the ultra complicated and politically charged tax code game.

Really it falls into the category of "can't do anything about" (other than put money to risk in the stock and real estate markets)  so I'll just accept reality as it is and move along.

By the way,  I think it is the 120% of a Gulfstream Jet that is the correct answer. 







skyrefuge

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Re: Mustachian inflation rate
« Reply #28 on: June 15, 2015, 04:01:44 PM »
I'm in Canada so the big drop in the loonie doesn't help.

Ah. Your original post implied that the "official" inflation rate (the one you don't believe) was 1-2%.  Now it turns out that you weren't even right about the official rate.  If you're going to call the official numbers "lies", don't you think it might be nice to at least find out what those official numbers actually are?

In Canada, the overall inflation rate between May 2014-April 2015 was 0.8%. For food purchased from stores, it was 2.8%. Butter was -1.7%. Cheese was 0.6%. Beef was 16.5%. Video equipment was -6.4%.

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/cpis01a-eng.htm

Buying only no-label store brand in the biggest "cheap" supermarket chain here:

You're aware that one particular retailer's price changes are not a good measure of "inflation", right?

Cassie

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Re: Mustachian inflation rate
« Reply #29 on: June 15, 2015, 04:12:14 PM »
Even though gas prices have come down they are still high on the West Coast. As we are taking a month RV trip the gas is costing us about $2,500.00 to go 4,000 miles. We planned in advance & put off the trip for a few years because of how high they were previously. At home we don't drive much so not such a big deal. I think gas & food are two big ones on this side of the US. However, our property taxes are dirt cheap along with shitty services.

StacheEngineer

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Re: Mustachian inflation rate
« Reply #30 on: June 15, 2015, 08:14:16 PM »

In fact I believe it should be the only tax and that the Government should merely print the money instead of playing the ridiculous banking shell game and the ultra complicated and politically charged tax code game.


Constant inflation isn't a big deal. if you can assume that inflation will always be exactly 2%/year, then on any fixed-income investments (bonds, CDs, etc.), you can take the nominal yield subtract 2% and there's your real yield. It's easy and everyone knows exactly how much that bond is worth. On a CD you'd easily know how much money in today-dollars you will have in 5 years when the CD expires.

However, under your plan, each year's inflation would be subject to the vagaries of Congress and the economy. As we all know Congress, especially recently, isn't known for getting things done. In addition, inflation would necessarily go up with government spending. The big issue here is now inflation is not constant and we really have no idea what inflation will be like in the future. Therefore, you can't price in inflation and so you will need over protect yourself against inflation risk.

Constant moderate inflation erodes the value of current money to encourage the productive use of money in an economy. As we all know, fiat currency is even more of an unproductive asset by itself than gold! Without inflation, you could just sit on a suitcase of money and expect its value to increase which is a horrible use of capital. With inflation, you are incentivized to do something with that money, either consume or invest. 


beltim

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Re: Mustachian inflation rate
« Reply #31 on: June 15, 2015, 08:42:32 PM »
Inflation is however the biggest tax we all pay.  (yes even Alan Greenspan and Ben Bernanke consider it a tax).

Consider this -- You own a paid for house of 400K,  stocks of 2,000,000  --- even if inflation is the fake 2%,  the value of your assets diminished by $48,000 whether the markets went up or down that year.   

So if someone like MMM earns 40K in income he deludes himself into believing he lives in a low tax environment. When in fact he paid in excess of 110% in taxes that are hidden and very difficult for many people to understand.

I also frequently like to use ridiculous incomparable numerators and denominators.  Gasoline taxes in my locality are 37% of the price of an orange.  My sales tax I'm pretty sure is calculated as 0.1% of the amount in my 401k.  And my state is running a budget deficit equal to FOUR MILLION percent of the SNAP benefits it gives out.  Or is it 120% of the cost of a Gulfstream jet?  I always forget that one...

You may have missed the part about deluding oneself?   

No, I'm specifically taking issue with the bolded statement.  Expressing a change in assets as a percentage of income is nonsense.  They're not comparable numbers, and they give you meaningless answers.  Is inflation higher for those with more assets?  Is inflation lower for those with higher incomes?  No.  So expression inflation as a product of the two doesn't make any sense.

Scandium

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Re: Mustachian inflation rate
« Reply #32 on: June 15, 2015, 10:41:43 PM »
I eat alot of eggs since I went mustachian.  It is the one staple product that I note the price of every time I buy it, because there is a huge per unit variation, and I have to sit their with my damn phone calculation, because dividing by twelve is the oldest marketing ploy in the world.

Usually, I can get a large or extra large egg for 21 cents per unit.  For over a year now, the only time I've had to pay more than that was when they were out of the 18ct or higher packages, or out of the cheaper eggs.

Last weekend I was buying eggs for the first time in a month, and the price was up to 30 cents per unit, with the brown eggs "organics" going for closer to 45 cents!

I called the manager over and bartered over how many eggs I needed to buy to get the price down and we settled on five dozen eggs for 22cents each.

So with a little hassle, my eggflation stands at 1 cent per unit, or a little less than 5% increase YOY.  Everyone else at the store was paying eggflation of damn near 50%.

Mustachian won't quit yo.

I guess that is inflation too, but seems somewhat temporary (hopefully):
http://ktla.com/2015/05/30/egg-prices-spike-nationwide-due-to-avian-influenza-epidemic/

Eric

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Re: Mustachian inflation rate
« Reply #33 on: June 16, 2015, 10:49:03 AM »
I called the manager over and bartered over how many eggs I needed to buy to get the price down and we settled on five dozen eggs for 22cents each.

So with a little hassle, my eggflation stands at 1 cent per unit, or a little less than 5% increase YOY.  Everyone else at the store was paying eggflation of damn near 50%.

Mustachian won't quit yo.

This is awesome!  Way to combat that eggflation!

gerardc

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Re: Mustachian inflation rate
« Reply #34 on: March 12, 2018, 09:51:49 PM »
This is an important topic. Here is a simple argument against ShadowStats alternate CPI for Mustachians.

Look at the historical median household income (e.g. https://www.advisorperspectives.com/dshort/updates/2015/09/23/median-household-income-growth-deflating-the-american-dream). You'll see median income roughly follows published CPI in the long term, with a difference of only 7.5% in the last 50 years. This means that if you follow a withdrawal strategy (e.g. 4% rule) adjusting for inflation using government-published CPI figures, 50 years later you'll end up at about the same income level relative to your peers. If you were middle class at FIRE, you will still be 50 years later; if you were upper middle class, you'll stay there, etc. This will allow you to afford human capital-based services like haircuts, rent in prime locations, concert tickets, etc. the same as before. To me, this is convincing enough.

According to ShadowStats, using official CPI (which keeps you at the same income percentile) would allegedly reduce your standard of living by 73%; yes, this means ShadowStats claims there is a large decrease in standard of living for the average American. This sounds highly suspicious to me, but even if it were true, it isn't something that affects your FIRE plans exclusively, but society as a whole, so I'm not sure it's feasible to insure against that.

ePalmtrees

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Re: Mustachian inflation rate
« Reply #35 on: March 19, 2018, 10:31:11 AM »
"It would be a much cleaner system, in my opinion, if federal taxes were done away with altogether and the government simply printed whatever it wanted to spend each year.  (not borrow -- print)  That would completely tax the underground economy and companies would work their asses off to find cost savings to minimize price increase in their products. 

Inflation would settle in around 5-7%, which is a reasonable tax rate spread across everyone and there would be no need for funny business with tax codes etc...

It would also do away with the government spending 500 billion per year on debt service."

Does that happen to be what Ron Paul wants to do? I've heard he wanted to get rid of the IRS which sounded a little crazy, but what you say could make sense.

thd7t

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Re: Mustachian inflation rate
« Reply #36 on: March 19, 2018, 12:39:39 PM »
This isn't what Ron Paul wants to do.  Libertarians don't tend to believe in printing fiat currency.  I never fully understood Bob W's explanation of this idea (he discussed it in a few threads), but I would be curious to hear more about it.

gerardc

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Re: Mustachian inflation rate
« Reply #37 on: March 19, 2018, 10:55:03 PM »
Well, taxing via inflation would transform our current income-based tax to means-based tax. This means if you're a saver, you'll get this tax every year on your stash; if you spend your whole paycheck as soon as you get it, you'll essentially never be taxed yourself. This is true regardless of the amount you make, so a saver from the lower class would have a higher effective tax rate than an ultra-rich spender (maybe even higher net tax amount).

I can't see how this is a good idea at all.