Monday, April 2, 2018

I'm getting seriously worried about inflation


The other day, Miss D. and I dropped into a local Sam's Club to buy a few things we needed.  They weren't particularly luxurious items;  a few cheeses, some sausage, that sort of thing.  I didn't give them a second thought, until it came time to pay for them.  Half a dozen items (bought in bulk, to be sure, but nevertheless, only six of them) came to rather more than $100.  That was a slap in the face.  Even a year ago, I could have bought (and did buy) those same items for rather less than $100.  The rise in their prices over less than half a year is startling.

I've noticed something similar when spending money on routine items in many stores and restaurants.  For example, even five years ago we could eat out as a couple in a "normal" restaurant (pizzeria, meat-and-three, burger joint, the local Thai eatery, whatever) for about $20-$30 for the two of us.  Today, we're lucky to get away with less than $40 for the same meal, and it's frequently close to (or even over) $50.  Auto tires?  The last tires I bought for my pickup truck cost me less than $130 each, which I thought was expensive, even though they were a premium brand and I bought them from a vendor known for low prices.  Today, just four years after I bought them, you can make that $200 per tire from the same vendor.  That's an increase of about $70 per tire in four years, or an average of $17.50 per year.

Government figures for inflation are risible, of course.  They're deliberately skewed to hold down the "official" rate, because that saves the government money when it pays out inflation-linked benefits such as Social Security, etc.  However, even using lowball government calculations, inflation is moving upward too fast for comfort.  David Stockman pointed out last month:

... core inflation is accelerating rapidly.

To wit, on a year-over-year basis the CPI less food and energy printed at "only" 1.8%, but that embodies a huge base effect owing to the aberrational plunge in telecom services last March. By contrast, on a three month rolling basis, the core CPI has risen from 1.9% in November, to 2.3% in December, 2.9% in January and 3.1% in February!

In fact, the 3.1% three-month annualized rate in February was the highest it's been since before the Lehman induced melt-down in September 2008.

Moreover, we are talking about "core" CPI here with no wild oil price fluctuations confusing the picture. And that also means that when the huge telecom adjustment drops out of the CPI less food and energy base next month, the Y/Y figure will also sharply accelerate.

There's more at the link.

As I said, ignore the single-digit inflation numbers given in the above excerpt.  They're calculated according to government formulae.  If you calculate them according to actual increases in prices (e.g. the Chapwood Index) or according to historical formulae, before political meddling interfered (e.g. Shadowstats), they look much, much worse.

In 2016 I did a detailed two-part study of inflation, which highlighted the problem, looked at the alternate inflation figures provided by Chapwood and Shadowstats, and described the reality of our current position.  If you didn't read them then, or don't recall them, I strongly urge you to do so.  They're brutally factual.  I defy anyone to contradict the points I made there, because they're all based on reality and on actual evidence - not government meddling.  I pointed out, in the second article:

Our incomes are being reduced in purchasing power by approximately 10% per year (the real rate of inflation, as discussed yesterday).  If I earn $50,000 per year, and receive a 1% increase this year to compensate me for the official rate of inflation, this is worse than meaningless.  In reality I will suffer a 9% decrease in my purchasing power.  Next year, my income of $50,500 (including the previous year's 1% increase) will be worth only $45,450 in terms of this year's purchasing power.  That decline will continue, year in, year out.  I have to plan accordingly, and expect that my money will buy less and less as time passes.  Unless I can somehow find extra money from somewhere, I'm going to be in serious financial difficulties in due course.  (Many people already are.)

I think the rate of increase in prices is accelerating.  My (rather lighter) wallet tells me so.  Readers, what are you seeing?  What are you experiencing?  If you find the same thing, please tell us about it in Comments, giving specific examples if you can.  Let's learn from each other's experience, rather than from bloviating bureaucrats.

In particular, I'm remembering what it was like to live in a relatively high-inflation society (South Africa from the 1970's onward).  One got used to routine annual increases in salary in the 10% to 15% range, just to keep pace with inflation - not as a reward for performance.  Top performers got larger increases as a reward.  I wrote about that experience in greater detail a few months ago.  Again, I recommend that you re-read it.  I believe the risk of that happening here in the USA is no joking matter.  The warning signs are there.

I think we're on the cusp of my earlier warnings about inflation becoming hard reality.  What say you, readers, from your day-to-day experience?

Peter

27 comments:

Anonymous said...

I'm agreeing - the cost of living is faster than paycheck raises. Some years back, I could lay 15% of my paycheck to savings, emergency purchases taking some of it occasionally. Now, I am lucky to lay back 10%, struggling to do even that. Insurance - bills - vehicle repair and maintenance - food. It all factors in. I've had a few weeks where saving even a C note was difficult - unexpected costs and 'real life' intruding.

To make matters worse, interest on savings is hardly worth it. Shrewd investments it seems will be a safer option.

Ragin' Dave said...

Prices are far higher than they were a decade ago. We used to get pork scraps to make sausage at 79 cents a pound. We now pay at least $1.79 a pound for pork, and that's on sale.

I got a set of tires for my truck sometime back in 2008. $450. For some pretty aggressive tires. We got tires for the wife's car last year. $650, and that was once again on sale. Normal price was $800.

A 35-cent can of tomato paste in 2008 now costs close to a dollar. Damn near everything has doubled in price over the last decade. We're running up to the end result of the lousy economic policies of the past several decades, and it's going to bite us in the ass, hard.

Steve Sky said...

Hi Peter,
It isn't just the check-out cost of the item that is going up. It's the size of the item that is decreasing. As an example, a bag of sugar used to be 5lbs, and now it's 4lbs. Or I can remember an 8 ounce can of tuna and now the current can of tuna is 5 oz. You notice this in home cooking as the recipes were based on the grocery package sizes, and now you have to open two packages with a partial left-over, where the recipe used to use one package.

Referencing the bag of sugar, you're only getting 80% of the previous size, although you're paying the same (or higher) price for it, so the price increase is coming from two directions simultaneously.

Anonymous said...

I've also noted sizes getting smaller and prices going up. I pay particular attention of unit price, or price per ounce. That has steadily been increasing. You'll really notice this in small discount stores like Dollar General or Family Dollar. The tube of toothpaste, bag of candy, container of soap etc is likely is smaller than their counterpart in Wal-Mart or wherever and you only get the appearance of savings.

Being in agriculture I can tell you that the price farmers are receiving for corn, soybeans, beef, pork, milk etc are abysmal and bear no correlation to the price you and I are paying in the store for food. Grain farmers are in a serious crisis mode. Prices are so low that that stored grain is being stored or sold at a loss. Input prices, seed, fertilizer, machinery, rents, land prices, fuel, pesticides are increasing and have been for some time. Already operating on a razor thin margins and many with frightening debt loads are going to start going under unless commodity prices increase dramatically. I don't think anyone foresees that happening and a farm crisis far, far worse than the 80s is likely looming. Some see this as being engineered so as to put multinational agrigiants in control of production. They'll be buying up land and securing control of the food supply from land to table. The added bonus being deep red areas of troublesome rural folks can be replaced with more docile third world labor and turned blue. This has already happened to some degree but when the farm economy collapses you're going to see it happen wholesale and be praised as investment, necessary consolidation for global competitiveness and job creation. It is none of those things. It's about control and population replacement.

 Ashley said...

Correlation doesn't chow causation, which is my way of saying anecdote is not the plural of data.

What I notice is that the cost of things have risen, but wonder how much of this is down to me not valuing the things that have gone up? People seem to pay a lot of money for things I think are frivolous at best, and a complete waste of money at worst.

And I say that as a person who spends money on frivolous things, like my hobbies.

All that said, we can no longer feel we can afford to go out for a meal either, which we used to do, and I date this roughly back to circa 2008'ish.

McChuck said...

I moved to my current home a little over ten years ago. Prices for everyday items (food, clothes, utilities) have more than doubled in that time, and are noticeably up from last year.

The value of my house,of course, is almost 2/3 of what I paid for it at the top of the bubble. Sigh.

Bob M said...

You may notice that a box of typical cereal(Cheerios, corn flakes, etc) looks the same size from the front, but they are getting so thin they're getting hard to keep standing up. A standard box of Cheerios is almost an inch thinner. That's a lot of missing product.

Anonymous said...

Everything but milk has gone way up. Mom and Dad Red started tracking things in 2014, and only milk has been steady. Why milk? Because Braums often runs sales, so we can get 2 gallons of whole milk for $5 plus tax.

In 1999, I estimated $35/ week for all household expenses (one individual, no pets) while living in a rural area with somewhat higher prices because of transportation. My last year in grad school (2008) it was $50 per week, again for food, cleaning products, et cetera. One person, no pets, eating on the cheap end of the budget line.

LittleRed1

Anonymous said...

While I think overall inflation is increasing, I have seen price deflation on a few items. I watch the price of ham, smoked salmon, and maple syrup at costco.

They are all cheaper than last year at this time, with maple syrup down 2-3 dollars.

I've gotten a lot more aggressive with instore coupons and sale items. As part of prepping, buying enough to get to the next sale just makes sense.

Our local HEB grocery has a roughly 3 month cycle of what is on sale. So I buy canned veg that month, boxed potato products that month, canned beans another, etc. I try to never buy items I KNOW will go on sale when they aren't.

I usually save 12-15% on every grocery basket, and that's at the store with the best price/value around.

Combining the local grocery savings with Costco bulk buys ONLY when onsale (for items that GO on sale), helps me get more for the money.

Also, I always check the discount rack/clearance shelves, and scan the meat counter for mark down stickers. I'm either gonna freeze/use/ or ignore the expiration date anyway.....

nick

Anonymous said...

Which stresses the value of procuring assets for future use; if you use it, whatever it is stores well, when one finds it for a good price, buy not just the one unit to replace what you used, but several and set them aside for future use. Having "inventory" also allows you to cherry pick sales and negotiate for bargains.

Margaret Ball said...

Our nearest market delivers for free - if your order is more than $50. When they started offering this service I usually had to add some long-lasting or non-food Items to our weekly list to make it over that limit. Now it's rare for an order to be less than $80, and our eating habits haven't changed.

Anonymous said...

Here in Silicon Valley, Taxafornia the inflation is "to the moon", to quote Ralph Kramden. House prices in my 1950's 1100 sq ft houses subdivision are getting to $2 million. You read that right, 2 million. Thank goodness for Prop13 since the new buyers are paying 1% of that per year as property tax, $20K. All the local cities have jacked up their minimum wage to $15 per hour so prices in all the fast food joints have increased abou 20% in the last 2 years, and I do not see how they stay in business even with that. Gasoline costs around $3.20/gallon and the Democrats who run this place have a supermajority in the legislature so they rammed through a 50 cent/gallon tax increase. Plus businesses are paying "carbon tax" for the Democrats to fight "climate change" or whatever the latest buzzword. BTW, notice they do not say carbon dioxide, a gas that is necessary for all plant life. Anyway, take some solace that you live in Texas or it could be worse.

BTW, what do you think of the pasing away of Winnie Mandela. I recall she was very proud of her "necklaces." She is being lionized by far left NPR as "the mother her nation."

Steve Sky said...

Some other examples: The way chocolate manufacturers continually shrink the candy bar, and give odd (15/16ths?) sizes for their weight. The way snack manufacturers provide a large bag visible in the vending machine, but only the bottom 1/8th actually has the chips. The rest is air, stored in an opaque bag. I liked this image, poking fun at Lays for that. Smaller bottles for clothing detergent, "but it cleans as much as the larger bottle". Toilet paper rolls that only occupy 3/4 of the holder, where it used to go from stop to stop. Ice cream packages that are no longer 1/2 gallon, but are instead 1 1/2 quarts.

LindaG said...

My experiences, too. And definitely agree with you.

LindaG said...

Control the food, control the people. Just ask the North Koreans.

Will said...

Peter,
a hidden factor overlooked by almost everyone in our ongoing struggles with inflation is the degradation in quality of the products we are purchasing.

We no longer get the same level of quality in most consumer products, unless the specifications are mandated in some fashion. This has been ongoing for about ten years, that I have noticed. Some of this can be discerned by reading the contents label.

With food products, I no longer buy the name brand version if there is a generic or store brand, as there is no longer a difference in the quality of the contents. This can be clearly seen with stuff like Quaker Oats. I do mean "seen". The difference was in the filtering of junk or inclusions with the oat flakes. That's an easy way to cut costs.

Reducing or eliminating quality control is usually the FIRST response when a business determines they need to lower their operating expenses. It's easy. This was the first thing that brought my attention to the inflation issue. This was followed by the reduction in size of the contents of food containers.

NITZAKHON said...

My late father had a 500 million Deutsche Mark note; I recently had it framed as an example of what happens when a government runs the presses.

I have no explicit data to support this contention but IMHO all the rounds of printing under Barackus are starting to impact reality.

deborah harvey said...

soon, due to walmart's greed, small dairies will be closing. they have been put out of business overnight and with no warning.

their arms may be bought by agribusinesses for the payoff price at sheriffs' sales or just let go to ruin.

twosparrowsfarm.com about dairies being destroyed

jonrappoport.wordpress.com about gmo's

Anonymous said...

I think it must be regional (we live in a free state; you could have the Demunist convention in a phone booth)

We routinely pay between $1.49 to $1.79 for a gallon of milk. when we traveled to the State of Maine we noticed that milk there costs between $3.50 to $5.00 per gallon. When we inquired regarding the seemingly same cost regardless of the store we went to, we discovered that Maine has minimum pricing price controls on milk. That is not inflation per se, that is government "helping".

On tires, how much of the cost needs to be subtracted to see the government surcharge per tire? Some states also tack on neo-Druidic pagan earth-worship fees for tire disposal.

Will said...

BTW, here in Silicon Valley, a large percentage of the buyers of homes are Asian, mostly Chinese. People have been wondering where the Chinese people have been investing their money, since it isn't staying there. They are buying lots of US property, especially here in CA. They seem desperate to get their money out of China/Asia. The odd thing is they are not going to make a profit by renting these homes, since the property taxes are so exorbitant.

My local city has started chasing commercial businesses out to convert the land to high density housing. When they run out of that type of property, I expect them to start clearing out single family homes to continue their conversion of the city to high density. They tell me the city can't afford to make inroads into single family properties, but I don't believe them. It gets bought by developers. They are doing this for the increased tax base. Local politics are now run by Asians, and that will not change.

The really bad thing about the high density housing is it is primarily being built on "fill", land created when the Bay and surrounding wetlands were filled in back in the 19th century. It acts like a liquid when hit by an earthquake. I've seen it during a couple of earthquakes. Really weird to see waves rolling across a blacktop parking lot!

deplorable me said...

I've got plans to add garden beds, a green house, and chickens in the next few years. I don't tend to eat real exotic foods, but I've certainly noticed my grocery bill creeping up. One thing that I've done in the past is to do bulk cooking: a big grocery bill every 4-6 weeks, fill up the freezer with cooked entrees, and then only worry about fresh produce every few weeks.

mark leigh said...

Thank the Federal Reserve, their mandate is to maintain about 2% annual inflation rate. The banking system makes a nice profit off of this fact.

Paul, Dammit! said...

Peter- I'm seeing it too, both personally and in my work capacity as a midlevel pimp of ship fuels in NY/NJ. Personally, I've switched to a keto diet at work, which has cut food costs considerably, along with 50lbs since New Years, but which probably contributes to my shipmates' bar tabs at home, as I can be a bit of a bear during carb flu outbreaks. Our food budget hasn't increased in 3 years, which has made keeping fed a challenge.

Workwise, we're under enormous pressure. While fuel prices are relatively stable now, our costs are not. We took an across-the-board pay cut and switched over to a lower-cost insurance plan as part of cost containment, but along with increased costs related to food and consumables, every vendor and supplier has had to increase prices, which of course get passed along. I'm about 9% over budget for the year to date for my barge purely because of cost increases. Our strategy last year was to cut the paint budget, saving us about $10,000, but increasing metal wastage, of course, which means cutting into the service life of the vessel. It's not good.

Anonymous said...

Peter, I hope you don't have to buy a battery anytime soon. Last month, I had to get a new battery for my truck: $140, for a battery that use to run me about $60 or $70. Motorcycle batteries are just as bad: I pay about $75 for a battery I used to get for $30 or so.
--Tennessee Budd

Anonymous said...

Something else I've noticed, in my area at least, is that more people are literally wearing cars out. People spend to keep a car running until it is actually falling apart or main powertrain parts die. Independent repair shops are doing big business. A used tire is as rare as hens teeth. People wear them to the cords. A blown pickup that is structurally solid will get snapped up and get a new engine or trans by guys who can do their own work. People who once would buy new, or nearly new, just aren't doing it. They're either hoarding cash or they're already drowning in debt. This is something that has been much more noticeable in the past 18 months or so.

Something is coming and people on some conscious or subconscious level feel it.

NITZAKHON said...

@Anonymous:

Yes, I think something is coming. People I know are cutting back too. It's time for me to think about another car; instead, I too am "running it into the ground".

Running Out of Financial Road
http://obamasez.blogspot.com/2017/07/running-out-of-financial-road.html
** Shameless self-reference, but in here I do link to a couple of Peter's items.

Antibubba said...

Nothing is coming. It's already here for many of us. 60% of my income goes to paying the rent. I'm looking for better work, but...