True US Inflation at 11% ?

Silly. Any indvidual can monitor their own year-to-year budget to see how it increases. Mine isnt the official 3% nor the this 11%.

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The 11% claim is sandwiched between ramblings on hedge funds and a prediction that "everything is obviously roaring out of control and anyone can see what will happen next: hyperinflation."

I'd look at

and decide for yourself. Some costs (health care for one) have risen faster than inflation, others, not as fast. The remarks at the site above are unsubstantiated to say the least.

JOE

I've been monitoring my expenses for the last

15 years or so. My number runs about 6.2% these days. A far cry from the official 3 to 3.5% numbers, but certainly nowhere near 11%. .

My numbers for my area show more like this:

1% 1% 350% 3% 3%

That big jump is when you decided to buy one of the overinflated homes in this area. If you count home prices as part of the inflation numbers (they are expenses for homeowners), 11% over the average 4- year holding period for a home sounds about right.

Are you saying that your expenses are increasing 6.2% per year, or that the price of the various things you buy have risen 6.2% per year? How do you weight the prices of things you buy? What items did you select to monitor? How do you account for changes in quality, features, etc.? This is something I wouldn't mind trying (i.e. tracking my personal inflation rate), but it sounds like a lot of work, really boring work at that.

-Will

Quality and features really don't count if there are no alternatives in the market. For example, gas might burn cleaner, but I have no choice in what gas to use either now or 10 years ago, there is only one kind on the market.

I look at the three largest items in my budget, and see how they have done over the past 10 years:

Housing - 10 years ago, I paid $875/mo for a 1100 square foot apartment. Today, I pay $500/mo for a 1900 square foot home. Utilities are about the same between the two, but I have a commons fee of $175 for the home owners association. So, this is about a wash.

Food - 10 years ago, I could get 3 items and a medium soda at Toco Bell for $2.78. Today, 3 items are about $5, and I won't pay $1.50 for a soda, so I go across the road and get a soda from the machine at Wal-Mart for 60 cents. So, food has about doubled in 10 years.

Gasoline - 10 years ago, I was paying $0.99 to $1.20/gallon for gasoline. Today, it is $2.88/gallon on average. So, gas was far more than doubled.

Where this hurts is that gasoline is now the biggest budget item that I have, often being more than my house payment or food bill in a given month. This has to be my next item to attack--how can I travel and not pay so much for gas.

-john-

My housing costs have decreased. I no longer have a mortgage. 5-6 years ago we put on a new roof and replaced all the windows with more energy efficient ones, so our utility bill is also less. Property taxes are up, but only about 10% over your 10 year period.

I don't make purchases at fast food restaurants. I think we're eating differently than we did 10 years ago, too. Less beef, more chicken and fish and the fish is often given to us. Still, our grocery bill is up a bit, perhaps 15% in 10 years.

Yes, gasoline is up horrendously. We would gladly pay your $2.88 - today the cheapest we can buy gas is $3.22. However, our 6 year old car has only

34,000 miles on it and that's after a 6,000 driving vacation last summer. Gasoline is not a particularly big percentage of our overall budget. With no car payments and both vehicles with relatively low mileage, we don't spend much in this area.

No, our personal inflation rate is far less than 11%. In fact, I think it's less than 3%, though I don't have the numbers to prove it. I think sick care will impact us more as we get older, even though insurance cost increases will not be part of that picture. I say sick care because the medical community doesn't do anything to make us healthy, they only treat our illnesses. Only you can do something about your health. Go take a walk, and eat your vegetables - that will likely have a positive impact on your personal inflation rate.

Elizabeth Richardson

When I started working in 1984, gas was $1.25. Call it $3.00 today and in 23 years that average increase was 3.9%. $1.25 in 1984 inflates to $2.51 today using the CPI numbers. So over that long period, it did increase a bit faster. What they would suggest is that when MPG adjusted, your cost per mile has probably dropped, I won't go there. You are right about the 10 years though, the chart for gas

a sideways trend, and more recent run up. But no one remarked how great it was that gas didn't even pace inflation from 1980 right through the late nineties.

My memory isn't that great for the cost of food, so I can't comment too much there.

JOE

When I was young I was on top of the world if I found a penny, or some other coin, on the sidewalk. Today I don't bother to stoop down and pick it up unless it's at least a nickel. That is inflation.

When you were paying $875, was that rent? Since you're paying $500 now towards a mortgage plus the $175 fee, are you also including the cost of capital sunk into the home (ie. the forgone interest on your down payment)?

The effective cost of housing when calculating inflation is one of the trickiest (and arguable) areas. Just because your mortgage has been paid off and your apparent out-of-pocket expenses have gone down, you still have an effective cost in tying up a heap of capital in the house - money you'd have made had you not so tied up that capital.

The official CPI used to do it via an "owners equivalent rent" cost of the housing when one owns one's own home (whether it's paid off or not).

Anyway, the point is not that you're doing it wrong - there is no real "wrong" in this - there are just questions of what's the point of the "inflation" number you're coming up with - what does it actually mean and what are you trying to capture with it? It may well be that for figuring out a "personal inflation number" which captures how exactly your personal everyday out of pocket cash costs change should, in fact, ignore all that stuff and just add up your mortgage, homeowners insurance and property taxes and that's that. It makes for a very unsmooth curve - you can refinance or pay off your mortgage and it looks as if your prices have changed. They really haven't - not signficantly (maybe if interest rates changed vastly, but what if interest rates haven't - or you just paid the place off). What's actually happening is that your personal *costs* are changing, not *prices*.

It'd be a worthless number on a macro or aggregate level and no economist would look at it twice. But it may well be the right number on a personal level and perfect for financial planning. Apples versus oranges, but if you're making orange juice, it just doesn't matter what the apples cost.

You are right...I am building up an asset by paying a mortgage. But at the same time, I have upkeep and taxes that I didn't have when I rented. Since one did not seem dramatically larger or smaller than the other, I called it a wash rather than doing an in depth accounting.

-john-

This is true, it'd be pretty hard to buy a new TV without a remote these days.

Do you weight these, or do you just carry three inflation rates?

Wow! Looking at my budget I see that I spend about 3.5x as much on food as I do on gas. Of course, in a thread several months ago I discovered that my spending is radically different than most on this newsgroup. And you might eat much more frugally than me, I haven't been to a Taco Hell in many, many moons.

-Will

Yes, but when you replace that old 32" tube TV, do you get a 32" tube model for $399 or do you get a 46"1080p LCD model for $2,599? If you get the latter, you can't really count the extra cost as due to inflation, unless you are talking about inflation of wants/ expectations.

Dave

Neither, actually. Inflation isn't something that I can do anything about, so I don't invest any time in it. I was just more or less throwing a few examples out there for discussion sake.

I would find it hard to eat $100 of food per week, even going out to eat as much as I do. But I burn up 2 tanks of gas a week at $50 per tank just in normal day to day stuff. When traveling, I can burn 2 tanks of gas a day without too much of a problem. I have been running at about $300 a month in food, and $500 a month in gasoline over the recent few months.

I would love to get a vehicle that depended less on gasoline or got far better mileage. The only problem is that my truck is just now broken in, it is paid for, and shows no need to be replaced anywhere in the near future. That leaves the option of getting a commuter car, but so far, I haven't found anything out there that is worth the plunge. I am waiting to check out the Smart cars once they come out. There is also a company in Iowa that is working on a 3 wheel enclosed car built out of motorcycle parts--that might be a good commuter option.

-john-

If you urban commute, they are OK, but a Prius will get you similar fuel economy (sub 25mph it relies on the electric motor and the regenerative braking). If you highway commute, I think the Smart would be a really uncomfortable machine, particularly in the land of the SUVs. They don't accelerate that well, and if anyone hits you, you are going to be toast-- a pickup or SUV will go right through the passenger compartment at chest level. I'm not sure about reliability (outside of a stop-go urban environment).

Perhaps look at one of the 'transplant' small cars like a Chevrolet Cobalt. Or a Toyota Avensis, or a Honda Civic? Small cars are 40% of the Japanese market.

There is also a company

3 wheel is probably not a good idea. There is a problem with instability in a 3 wheel car: we used to have them here (the 'Reliant Robin') and they were deathtraps.

What you really want is a diesel car. The US should have good diesel cars in 2008-09 model year. The VW Golf diesel is an excellent car (although spare parts and service tend to be expensive). The Japs have been slower on diesels, but are catching up.

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I don't monitor "quality, features, etc.".

A dozen eggs is a dozzen eggs. A loaf of bread is a loaf of bread. A gallon of gas is a gallon of gas. A bale of hay is a bale of hay.

For the basics, you can forget quality, features, etc. Any attempts to classify these things will only result in the bogus numbers you can get from Uncle Sugar.

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Actually food prices have fallen-- especially staples like chicken. Along with clothes.

A gallon of gas is a gallon of gas. A bale of

A gallon of gas is not a gallon of gas ;-). A British gallon of gas has a higher octane content than an American gallon. Or see Canadian beer v. American ;-). Gas prices were on a long slide from 1981, bottoming in 1998. They've now, just about, got back to their 1981 level (but incomes are much higher).

More seriously, a personal computer now is a very different thing than the IBM PC you could buy in 1981-- something like 1000 times faster, with 4000 times more memory. And your car has air bags, anti-skid brakes etc. and a host of features it just didn't have in 1981. And on average, 40% more horsepower. And it's more reliable.

Your healthcare is also better (but more expensive). The chance of dying of leukemia has something like halved since the 1970s (childhood leukemia used to be a death sentence, now it has something like an 80% cure rate). There are cancers then, that were incurable, that now have a near 90% 5 year life expectancy.

You see the problem above. They are *not* bogus. However they create a perception that prices have risen by more than the published numbers (because we take the quality improvements as read, and notice the sticker price only).

So you've actually tracked the prices you paid for eggs, bread, gas, and hay for 15 years? Wow! I have no idea what I paid for bread and eggs last week, much less 15 years ago. Gas maybe. Hay, no. How do you weight these items to come up with your inflation rate? Do you use the proportions you bought them in 15 years ago or something? It seems like gas (and maybe hay) would dominate your inflation rate (unless you eat a whole lot of egg sandwiches). Gas hasn't gone up 6% per year over the last 15 years I don't think. How about hay?

-Will