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Your Personal Rate Of Inflation

The Annual US Rate Of Inflation Isn’t Necessarily Your Rate of Inflation

Generally when we talk about inflation we are looking at the CPI (consumer price index) published by BLS. For most Americans this is a fairly accurate representation of the rise in cost of goods/services. But if you happen to have a more unique lifestyle and have built-in ways of circumventing high-cost economic times then your personal rate of inflation might be quite different. I will call mine the Dr Mo Expense Price Index, DMEPI.

This post is a little bit about inflation and a little about the CPI. Some inflation is needed and important for an economy to grow. The US is a bit unique because we sell a ton of our bonds to other countries and the dollar is pretty much the gold-standard backing for all major economic models out there in the world. In a way we are under the spotlight when it comes to the actual value of the dollar.

Inflation is mentioned as one of the most deleterious effects on your cash money. Many financial advisers will be against stashing money under your mattress or in a basic savings accounts for this exact reason. If my $100k is worth $100k in 2016 and we have a 2% inflation in 2017 then that same money will have a buying power of $98k.

As the economy grows and more businesses are built the more money is needed to keep the economy going, therefore the US prints dollars to maintain the growth. This is healthy up to a certain point which we passed a long time ago. The dollar is no longer backed by gold though many still think it is. We have been printing so many dollar bills that other nations are even giving us dirty looks because they know how it will affect their economy. Printing excess money causes the value of the dollar to go down – but when government tax collections isn’t enough to cover gov’t spending then there is no choice but to print more $’s.

Let’s not worry about the US economy too much as far as the dollar and its real value, let’s stick to the CPI and inflation as it relates to the individual consumer. The CPI is calculated every month. Prices for all sorts of goods are anecdotally collected from 87 urban areas from 6,000 households and 24,000 retail businesses including stores, medical offices and gas stations.

The items that are measured include food, clothing, housing, energy fuels, transportation, doctor and dentist fees, medication as well as other goods used daily by consumers. If you want to know the details of the CPI (because it’s so fascinating I’m sure) and how the data is collected and processed then check out their FAQ.

The most concise list comes from the BLS website and includes the following things:

  • FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
  • HOUSING (rent of primary residence, mortgage equivalent of rent, fuel oil, bedroom furniture)
  • APPAREL (men’s shirts and sweaters, women’s dresses, jewelry)
  • TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
  • MEDICAL CARE (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services)
  • RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
  • EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
  • OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

The reason I have my own index, the DMEPI, is because I am not a machine that will go to the grocery store and buy an item even though its price has gotten quite inflated; same holds true for paying for various inflated services.

Let’s start with food, it’s an easy one. I don’t eat meat, I don’t buy cheese or milk. I buy wine and fruits/veggies. I buy bread but am just as willing to make it at home or skip it. I am willing to switch my starches at the drop of a hat. Corn crops destroyed and expensive? I’ll switch to whole grain flour. Grain flour inflated? I’ll switch to rice.

Inflation is around the corner for the US which means probably for the rest of the world as well. When inflation is global it rarely affects only a few items, generally all goods are affected but not to the same extent. The advantage with my DMEPI is that it’s a reflexive index, adjusting to market prices. So when fuel prices go through the roof many transported food items are affected as well, buying locally produced goods can save me some money.

Or I could Mormon it and stash up on cans of goods, bagged rice, toothpaste, TP and other shelvable goods. These items will come in very handy during inflation, allowing me to consume items which I bought for much cheaper in months prior. How do I know whether buying all these items ahead of time and stashing them will be a worthwhile undertaking? I don’t. But what’s the harm? I can save time and money by shopping ahead of time and worst case scenario I’ll have a shitload of TP that I won’t use for a few years.

During traditional inflation prices may go up every quarter or maybe even every month. During hyperinflation prices will go up every hour. Americans are convinced that hyperinflation can’t happen even though it happened in Germany and has affected many countries since. I’m not saying it will happen but I don’t want to be a victim to it if it does. I don’t expect to be sued but I carry malpractice insurance because if I do end up getting sued it might just wipe me out.

Accounting for the housing equation isn’t easy because it’s not a mobile liability. Our jobs are often situated close to our homes and we have much of our belongings stored in a home. When it comes to inflation renting will expose us to it much more than a mortgage would. It would be even better if the home is paid off. If I’m renting the DMEPI allows Dr. Mo to move from an expensive neighborhood to a cheaper one to fight against higher housing costs.

Transportation is a big one and I’ve spent a lot of words on this topic in previous posts. I have no doubt that in our lifetime we will experience astronomical gasoline prices, absurd car prices, insurance costs and commuting costs which will be prohibitive for most families. Doctors will be affected too, sure, we’ll have more cushion but that cushion will disappear and suddenly an upper middle class family will live with tighter margins.

This is a great time to rethink your commute. Is there a way for you to live closer to work, to the grocery store or to public transportation hubs? Dust off your bicycle and see how much less car-dependent you can be. Consider learning the public transport routes and maybe combine it with some driving or some biking.

Can the cost of medical care become absurd? I actually don’t think so. Real medicine is still in the skulls of the doctors and little of it takes place in the operating room or needs to be practiced in an inpatient setting. Though for sure surgeons and specialists will always be needed which means reliance on inpatient care, medical equipment, medical labs and medications. These items can easily inflate. The DMEPI can really only adjust here by keeping myself as healthy as possible. Sure, I could prophylactically take out my gallbladder and appendix now to lock in a low-cost surgery but even Dr. Mo isn’t that crazy.

Other things to consider are monthly subscriptions (medical literature), storage fees, monthly entertainment fees (Netflix, gym, cable, internet), batteries and cleaning solutions. The DMEPI can adjust here by using mostly work internet should a time come (again) when home internet is charged per megabyte. Becoming less reliant on the use of a cell phone by using other modes of instant communication is an important skill to learn now. Owning a few DVDs or learning the habit of using the library for their books and media can be a big money saver sometime in the future.

I wanted to use this last-ish paragraph to talk about more drastic methods of protecting against inflation. Remember that you can always leave the country temporarily should the economic landscape be uninhabitable here. It’s important to live a lifestyle that’s flexible if leaving the country for a few months/years becomes an option.

Inflation or shitty economic situations don’t generally last too long, recovery takes place quickly though some disorganization will continue for a couple of years. Hyperinflation which is devastating can be over in a few months. Double digit inflation can last a couple of years. If you have a skill which you can take to another country, a smart country which knows how to decouple from the US dollar, then you could find yourself decades ahead of your peers once the storm blows over.

As with all my posts, I’m not trying to get you to lead a radical lifestyle. The purpose is to make you think about medicine and finances, somehow I’m trying to weave those 2 things together on this site. When I talk about leaving the country to escape hyperinflation I don’t mean to flee the country; instead I hope for you to be in a place in life where you can afford to take an extended period of time off of work and maybe vacation in Australia while the US is trying to dig itself out of its 94% Debt:GDP ratio.


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