Inflation is part of our economy and our monetary system. It’s neither a bad thing nor good. Rather, it helps the Fed preserve employment and economic prosperity. There are a lot of factors which affect inflation and it’s not all that interesting to talk about them. Inflation isn’t just an economic topic but a personal finance topic as well.

It would wrong to assume that the cost of goods always increases. The inflated price of the 25-cent burger from the 1950’s undermines the drop in price of cell service compared to the 1990’s. Many items go up in price but others spending categories disappear (magazine subscriptions) or go they go down in price (airfare, computers).

Illusion of Inflation

The reason we benefit from being more savvy consumers is because we are unfortunately fed inaccurate data when it comes to inflation. If you look up recent inflation rates in the US you will see that we have been hovering in the 1.5% range.

But then I look at the cost of rent, the cost of property taxes, health insurance, licensing fees, and tuition, something doesn’t jive. I really don’t give a fuck if the price of an apple went up by only 1.5% if my property taxes jumped from $1,700 to $2,100 in the same year. The same health insurance which cost me $140 a few years ago now costs me $300 per month.

The illusion of inflation extrapolates further to added costs. Even if my health insurance premiums went up by only 3% there is an unprecedented out-of-pocket expense for the average consumer.

Maybe airfare has gotten cheaper but the wait times have now gone up eightfold. How does one factor in the value of time into the inflated costs of services? Even simple legislature can surge our personal rate of inflation; such as when auto insurance became mandatory.

Inflation Proofing Our Lives

Inflation doesn’t just happen to us – there is some quasi-logic to it. The same inflation which drives up the price of milk also drives down the cost of the 30-year mortgage. In the dairy example I pay more year after year for the same product. With the debt example, I pay back the same fixed 5% interest rate with future inflated dollars which means I pay even less in actual interest dollars.

One of the main points of this post is something along the lines of having control over our spending. I don’t have to pay higher prices for certain items just because they are hit harder by inflation. Crude oil might inflate at a much faster rate than bottled water. Healthcare might inflate much more rapidly than a gym membership.

Real Estate

Rent is very much susceptible to inflation often because homes are owned by real estate investors. This is probably one of the main reasons I can’t bring myself to get into real estate investing. Though rent prices go up year after year I can always change cities as a physician – or countries.

If I’m retired then it doesn’t matter too much where I unless I need to be near family. If I’m not retired then I shouldn’t have a problem finding a job in a more affordable city.

Utilities

Utilities also go up with inflation. Solar water heaters, solar electric panels, battery storage systems, better insulation, rainwater collection systems, and greywater systems can all help cut back on inflation.

If I have useless grass on the front lawn and replace it with a xeriscape then I will cut future water costs and even help with climate control of my home. The same goes for roofing and the kind of pipes you install in the house, and so on.

Once again technology can come to our rescue. I may pay $50k to upgrade my windows but for the rest of my life I won’t have to touch those windows. It might be a one-time expensive undertaking but it’s a great way of inflation proofing the cost of my home. A friend just spend $150k painting her house and upgrading windows – fuck me!

Transportation

Cars have actually gotten cheaper. Even if the prices are slightly higher we get far more for the same price. The cars are safer and require far less maintenance. With this advance in technology we also have far more options.

We can choose which car to buy from which era based on solid research to keep our costs down. I can buy a 2001 Saturn sedan or a 2005 Honda Civic and know that it will last me decades with very little maintenance.

Car-free

Another way to sidestep inflation is to drive my car less or go car-free. Even if the price of gas goes through the roof, many more cities are developing strong public transit networks. Even bicycle routes are becoming more mainstream.

In the right city an electric bicycle can make your automobile obsolete. It’s a double whammy because it will also save on future healthcare costs; unless you get pancaked by a lifted diesel truck waving a confederate flag.

Finally, I have the option of moving from a city like San Diego which is built for cars to a city like Portland which is built for pedestrians. This not only lowers my transportation expense but also my housing expense.

Food

The price of food has gone up. In fact, the reason the prices haven’t gone up even more is because of farming subsidies. Grains and dairy are prime examples. How is it possible for a gallon of milk to cost only $4? How is it possible for a pound of wheat berries to cost only $1.30?

These industries are subsidized which isn’t as rosy of a situation as you might think. The reason they are subsidized is because from large lobby groups (Nestle, Monsanto) would have a lot to lose if the cost of such staples rose up too high. So they are in bed with the politicians to nuke the shit out of such products to drive their price down further. Unfortunately we are getting far more inferior products for the same price.

Shopping for pesticide free and high quality (high-nutrient) produce could easily triple or quadruple prices. But even here there is room to hedge against inflation. While I bought bread back in the day when working full-time I now bake my own. From drinking milk like a goddamn infant I switch to water.

Exercise

Gym memberships are still under $30/month which they were back in early 2000. Not much inflation there. The difference is that there are much more high end gyms now that the wealth gap has widened.

In 2001 when I was heavy into weight lifting I didn’t have the options of such high quality and cheap exercise bands. With gym memberships being the norm it’s now far easier to find used dumbbells for those who don’t want to stick to bands.

Stationary bikes used to cost a ton back in the 1990’s. Now you can get one from Amazon for $200 and it will probably last you a decade. Keeping telling my mom to get one who doesn’t care to pay for a gym membership.

Health

Doctors are no longer the gods we once thought them to be; present company excluded. 20% of illnesses require a physician and the rest is all about prevention or lifestyle intervention. I have access to that health information by talking to friends who are health nuts or subscribing to good podcasts and blogs.

The price of health insurance is the poster child of inflation. From $75 per month to $150 and now to $300. Not only is the cost going up but the value is going down. For that $300 I would have an absurd out of pocket deductible. To boot, the insurance company reserves the right to refuse reimbursing certain costs.

Information

Information used to be prohibitively expensive. Other than paying an expert for his/her advice there was no way to research a particular topic. Research articles were hidden away in hard-to-access library archives or only available to large institutions.

If your pops taught you how to repair your own car then you were in luck. Otherwise you were stuck with taking your car to the mechanic. Thanks to YouTube and car forums you can learn how to rebuild your own engine, troubleshoot a check engine light, and repack a bearing.

The point is that not everyone will leverage information to save them money. Others will browse YouTube to view the latest reviews of gadgets so that they can buy the next gizmo. Nothing wrong with that but it’s just a different use of information.

Investments

Inflation proofing our investments is also a possibility. I can hold money in cash or invest in bonds, stocks, or real estate. The last 2 on this list tend to do well when it comes to inflation. I would say stocks do better than real estate for the average person. Though I appreciate that a more seasoned real estate investor can keep the ancillary costs of holding real estate down.

I like my stock index fund portfolio for this exact reason. If you are comfortable with the volatility and the unleveraged nature of such an investment it can do well to keep up with inflation. Here is a graph from The Reformed Broker highlighting this relationship.

Why Talk About Inflation?

Many of us won’t worry about inflation at age 40 but as we get closer to retirement it’s one of the major fears our financial advisors put into us. The fear that your savings will be worth nothing. That your pension’s value will be miniscule.

Though inflation is inevitable, personal inflation is very different. As a consumer I have some control over my spending and can pick and choose what I want to spend money on.

You’re not immune to inflation just because you have a high net worth entering retirement. If you are spending at the limits of your net worth’s passive income then it doesn’t matter whether you are skidding into retirement with $500,000 or $5,000,000.

I wrote this nerdier piece in 2016 discussing my personal rate of inflation.

Gender Bias

Though not intentional (…..?), there is a massive gender bias built into inflation and investing in general. If you’re sporting a set of ovaries or identify as a woman then you will likely live longer than men. Inflation gnaws on the value of your wealth more than the dude who’s gonna drop dead at 55.

It’s even worse if you’re a female physician. Many more people depend on you, excluding your deadbeat ex. You’ll be providing for grandkids, grandparents, parents, neighbors, all while contending with a sexist wage gap which exists even in medicine.

The Inflation Trend

Those who read this website recognize the value in being a kind contrarian. Living off the economy rather than on the economy. Inflation exists but we aren’t going to take the Fed’s word for it. We’re not going to pay much attention to the Census Bureau values. Instead, we look at how much shit costs; it’s more accurate, more honest.

One interesting observation is that consumer spending is the sector which has drastically fallen in price. If you think about it it makes sense. Consumer goods, such as electronics, are the sector where people spend money. Subsidizing that sector and keeping costs down artificially low will encourage more spending.

Unfortunately, the US still needs revenue; taxes need to come in. So instead we are seeing a rather gross divergence of sectors. Those which are necessary for a good quality of life (food, healthcare, tuition, repair services) are going up exponentially. While less necessary items, such as gadgetry, is bucking inflation.