Author of Be Ready for Anything and Bloom Where You’re Planted online course
We’ve been pretty lucky over the last ten years in terms of inflation, which has remained at about 2%. However, if the Wall Street Journal is correct, our luck is about to run out.
The price of just about everything is set to increase in the coming months. Part of this is because manufacturers and suppliers are facing rising costs, just like the rest of us.
Airlines are paying about 40% more for jet fuel than they were a year ago. Trucking costs were up 7% annually in September, as trucking companies passed along their own higher labor costs. Private-sector wages and salaries in the September-ended quarter rose 3.1% from a year earlier, the strongest gain since 2008, the Labor Department said Wednesday.
Meanwhile, U.S. manufacturers are paying roughly 8% more for aluminum and 38% more for steel than a year ago as the industry adjusts to tariffs the Trump administration levied on imports of those metals. Also, a 10% tariff the administration imposed in September on $200 billion worth of various goods from China is weighing on businesses that buy those imports. (source)
With that being the case, it isn’t surprising that those costs will be passed on to consumers.
What is inflation?
Here are some basic facts about inflation from Investopedia.
- Inflation is a sustained increase in the general level of prices for goods and services.
- When inflation goes up, there is a decline in the value, or purchasing power of money.
- Variations on inflation include disinflation , deflation, hyperinflation and stagflation.
- Theories as to the cause of inflation are up for debate. Some common theories include demand-pull inflation, cost-push inflation, and monetary inflation.
- When there is unanticipated inflation, creditors lose, people on a fixed-income lose, menu costs go up, uncertainty reduces spending and exporters aren’t as competitive.
- Lack of inflation (or deflation) is not necessarily a good thing and can lead to destabilizing deflationary spirals.
- Inflation is measured with a price index.
- The two main groups of price indexes that measure inflation are the Consumer Price Index and the Producer Price Indexes. The GDP- and Price-deflator are also used.
- Interest rates are decided in the U.S. by the Federal Reserve. Inflation plays a large role in the Fed’s decisions regarding interest rates since it uses inflation-targeting as a policy.
- In the long term, stocks and precious metals are good protection against inflation. (source)
No matter what your spending habits are, you’ll see the effects if we face the kind of inflation that is being predicted by the WSJ.
The problem is, consumers are barely getting by as it is.
Despite reports of a burgeoning economy, the picture that a lot of us are seeing isn’t quite so rosy. Lots of middle-class families are truly struggling to get by as the cost of living increases but wages remain stagnant. Michael Snyder wrote on his website, The End of the American Dream, that 62% of all jobs don’t pay enough to support a middle-class lifestyle.
According to a shocking new study that was just released, 62 percent of all jobs in the United States do not pay enough to support a middle class life. That means that “the American Dream” is truly out of reach for most of the country at this point. Today, Americans are working harder than ever but the cost of living continues to rise much faster than our paychecks are increasing.
Earlier this month, I went and looked at the latest numbers from the Social Security Administration, and I discovered that 50 percent of all American workers make less than $30,533 a year. But that is just above poverty level. In fact, the federal poverty level for a family of five is currently $29,420. Most families are just barely scraping by from month to month, and most U.S. workers are just one major setback away from falling out of the middle class…
…We have been told that the economy has been “booming” in recent years, but the truth is that it has only been booming for people at the very top of the pyramid. (source)
But it really gets even worse than that. It goes far beyond not being able to go on vacations or dine out occasionally. Almost half of all Americans can’t even afford to pay for both food and rent in the same month.
And now, with burgeoning inflation headed our way, those who have been barely getting by are going to start seeing a serious decline in their lifestyles.
Here are some examples of the inflation we’re about to see.
These are some of the companies that are planning to raise prices in 2019 (or have just recently raised their prices) to cover growing costs and boost profits, via the WSJ.
- Oreo cookie and Ritz cracker maker Mondelez International Inc plans to raise prices in North America next year
- Steven Madden Ltd. said this week it was raising prices on handbags and other products it imports from China
- Apple Inc. AAPL 2.61% recently raised prices on new MacBook Air and iPad Pro products by about 20% and 25%
- Delta, JetBlue Airways Corp. and American Airlines Group Inc. have all raised fares or fees to cover higher fuel costs.
- Paint makers Sherwin-Williams Co. and PPG Industries Inc. in recent weeks said they would keep raising prices next year to cover the steeper climb in costs for ingredients…
- McDonald’s Corp.’s 2.4% same-store sales growth in the U.S. in the third quarter was fueled by higher-priced burgers.
- Brinker International Inc. said it raised the price of the two-entrees-and-an-appetizer deal at its Chili’s Grill & Bar chain to $25 from $22.
- Habit Restaurants Inc. raised prices by 3.9% in late May.
- Hershey Co. HSY -0.82% said it will sell candy in new packaging next year at higher prices per ounce.
- Kellogg released a chocolate variety of its Thick & Fluffy Eggo waffles and priced it 12% higher than similar products.
Prices have already been rising for dining out
The price of dining out has already been increasing at lower-priced outlets. Here’s how much the cost of the following items increased in the 3rd quarter of this year compared to the same time last year:
- McDonald’s Big Mac: up 4.7%
- Chipotle Steak Burrito: up 4.4%
- Starbucks coffee: 8.9%
- Dominos Ultimate Pepperoni Pizza: 5.9%
- Jimmy John’s Turkey Sandwich: 6%
- Panda Express Orange Chicken: 2.8%
Americans already spend an obscene amount on eating outside of the home each year. Zero Hedge recently reported of Q3, “…if one combines the data from the most recent two quarters, the contribution from eating at restaurants is the highest going back all the way to 1992.”
Other things with correlation to inflation
Inflation on its own isn’t going to destroy the economy, but it is often a precursor of negative things to come.
For example, you often see an increase in unemployment that goes hand in hand with inflation.
Inflation is also related closely to unemployment. The Phillips Curve relates the inverse relationship between the two. The theory states that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been challenged empirically due to the occurrence of stagflation in the 1970’s when there were high levels of both inflation and unemployment. Economists have responded by allowing for many different Phillips Curves to exist, or by amending the relationship between inflation and unemployment to changes in the rates of inflation and unemployment. (source)
The Federal Reserve generally monkeys around with interest rates during an inflationary period as well.
Interest rates directly affect lending and borrowing because higher interest rates make servicing loans more costly… A tightening, or rate increase, attempts to head off future inflation. (source)
This means it will be a lot pricier for people to buy homes and cars because their monthly payments will go up due to rising interest rates. Those items high-ticket items purchased during an inflationary period will cost the buyer far more than they would if purchased during better economic times.
How does an everyday middle-class family battle inflation?
It’s the same thing I’ve said over and over. As things get rough economically in our country, those who make the switch from being a consumer to being a producer will fare much better.
When you look at the prices of the things that are about to be affected, there are a lot of those items you just don’t need. Storebought crackers, fancy purses, dinner out? They aren’t essential. But don’t be deceived into thinking that inflation won’t affect you directly.
Those won’t be the only prices you see going up – I’m pretty certain we’re going to see inflation across the board, sort of a cascading effect. Everything which must be transported (so, basically everything that isn’t produced locally) is going to go up. Everything imported is going to go up. Small businesses will have to raise their prices to be able to afford to pay for the things in which the price is going up. Interest rates will make buying homes and cars out of reach for many Americans – even more so than those dreams are now.
The key is production.
- What can you make yourself with resources you can acquire locally?
- What staples can you purchase in bulk to be able to make things from scratch?
- What can you build?
- What can you reuse?
- What can you repair?
- What can you grow?
This is so simple that it seems ridiculous, but it’s how you survive rampant inflation and economic crises. You reduce your dependence on the consumption that has become the American way.
The more things you can provide for yourself, the more money you have left for the things you cannot make on your own. So, we’ll be talking a lot more about DIY and frugality on this website, because those are the survival skills you need to get through the inflation and poor economy that is headed our way. Be sure to go participate in the forum and join the discussions on DIYs, frugality, and the economy.
What will you do to fight inflation?
If you don’t feel that inflation will affect you very much, what are the things you do to make yourself more resistant to it? What are the things that you can produce on your own to fight an economic crisis? What are some expenditures that you plan to cut?
Share your thoughts in the comments below.
Don’t forget that part of that inflation are the tariffs being put on Chinese imports. That increases the costs to businesses and while they could hold the line on pricing for a while, they have to pass those along to us consumers. I’ve been trying to replace any big ticket items before the tariffs jump again, but otherwise will just trim my discretionary spending and try to weather the financial storm. Doing my bit to slow the economy so inflation will be calmer. 😛
A definition of inflation that I use, and is easy to understand, is: You have inflation when there are more dollars chasing goods or services. Fed dollar printing produces inflation. The Fed removing dollars from circulation produces deflation. You might be thinking, the Fed was printing Trillions of dollars to fund the governments deficit spending, but prices didn’t go up. Much of that money went into the stock market, and look at what it’s been doing the last 10 years. Had that money gone into circulation, the velocity of money would have gone through the roof and we would have looked like Venezuela, or the Weimar Republic.
This country didn’t have ‘inflation’ as long as we were on the gold standard, but that ended with Nixon removing that limit on government money printing, and we’ve had inflation ever since. Gold backing was limited to how much could be pulled out of the earth and how much the government stockpiled, and that we had dollars backed by gold meant that the government was limited in how many dollars it could print.
An adjustment is coming.
+1
The REAL inflation rate is much higher than the phony government statistic which uses substitution and hedonics to keep the rate lower than it really is.
ShadowStats uses traditional methodology to show the real inflation rate is between 6% and 10%.
http://www.shadowstats.com/alternate_data/inflation-charts
You nailed it!
Mr. Williams uses the same method that was used in 1980; before the PTB fudged the methods so they didn’t have to pay a real COLA increase.
There is a series of articles on his site that explains some of the changes mase.
My thanks to Not So Bad and Gerold for being informed Americans. With the government, figures lie and liars figure. Thank God for brave souls like John Williams.
Another tack food manufacturers take is to reduce the portion to keep from raising the price. A can of tuna from 14 ounces to 12 ounces and not change the price, then later the can size goes down to 10 ounces for the same price. So you end up buying two cans when you used to buy only one to make your meal.
And the household income (adjusted for inflation) has not increased since the early 1970s. Why do you think the decision was made in the 1960s that women should work outside the home to provide the family with two incomes, SO THEY COULD RAISE THE PRICES ON EVERYTHING, including homes. It’s pure and simply greed. And us 99% have suffered and will continue to suffer if these bums aren’t perp-walked to Gitmo.
I think you’re right, and I think the level of poverty is quite underestimated. Like us- our family of 8 makes about $57,000 but in our area with a high cost of living we are a hair away from homelessness. If our landlord dies or evicts us, we would have a VERY hard time finding housing we could afford.
The stock market is NOT the economy. Let’s not get this confused.
Inflation is not as complicated as the bankers and government want you to believe. Inflation is the result of and caused by only one thing. Artificial expansion of the money supply by creating debt obligations . In the larger economy, the amount of money in circulation is always equal to the total value of all goods and services. If you artificially double the money supply by debt creation, It doesn’t change the fact that money supply and the true value of all goods and services is still equal. It then takes twice as many dollars to buy the same amount of goods. The reason that this cause and effect is not well understood by the public is that the economy is so large, there is always a phase lag between cause and effect that may take several years to experience. You see, inflation is a hidden government tax that affects the poor and elderly on fixed incomes the worst. I hear politician say if we don’t have enough money we’ll just print it, like somehow this is free money. It is not. It is paid back by ever rising prices. Inflation is how the hidden debt of the money the government has created and spent is repaid by the people. They don’t even call it a tax, but believe me it is the most insidious of all government taxes because it consumes the work value of your savings. It consumes your future by making you a little poorer each day. Thru inflation the government can reach right into the savings accounts of every person and take the work value of the dollars you saved without you being any wiser. Don’t hold dollars, don’t hold stocks, don’t hold paper gold or any paper investments. You would be better to keep your savings in gold or guns or food or fuel or even levis. Anything of useful value. But remember that in a totally collapsed economy even gold won’t have value. Only food and fuel and medicines and water can be exchanged. At lease tangible assets hold their real value.
Exactly, if you can’t eat it or drink it or trade it for one of those items, it is useless.
I totally agree. Inflation is a result (or is caused by) of additional amount of credit (or money) in circulation as resulting from government deficit spending.
Deficit spending involves the transfer of a Treasury security as a debt instrument of the government to the FRBNY. The amount of book-entry credit created on a government account by the FRBNY is the value of the principal. The obligation requires the government to pay the amount of principal PLUS interest in the future. The interest is never created. The contract can never be culminated. [An interested person would reflect on the future of the Treasury security and the destination of the funds after the auction. The accounts have never been audited. Ref. 31 CFR 375.3.]
The only way to procrastinate the collapse of the Ponzi scheme is to issue more debt and pay the prior interest from the principal of the new obligation. The increase in required new value is exponential as we are observing. Ref. https://thedailycoin.org/2018/08/16/a-look-at-the-federal-reserve-through-a-different-lens/.
BT: sheeple, your lord and god told the American people that the tariffs would be good for the country and the American people. He lied again.
Never ( or rarely eat out ) no Starbucks . Simplify your lif with less calories per meal go for a walk instead of chips and dip in front of the tube . Fast occasionally , feast rarely eat on a average 1500 kcal a day if you do splurge not more ( at most ) once a week . ( there is a reason they called it an ” ice cream Sunday ” ) lol
Be sure to occasionally review the “junk mail” received from the credit card companies (especially ‘Capital One’) that show where credit interest rates are going: 18% to 23.9%, with default rate of 28.9+%!
Gary Choate and RayK articulated very well what I thought as inflation, the hidden tax.
Or, to add a Libertarian viewpoint to the mix,
“If the creation of new money affected everyone evenly, there would be no point in government granting monopoly privileges to a central bank, and as Ron Paul explains, “it’s precisely because some benefit at the expense of others, that monetary inflation is so intoxicating.”
Ron Paul Exposes The Truth About Inflation: “It’s The Fed’s Fault”
https://www.zerohedge.com/news/2018-02-22/ron-paul-exposes-truth-about-inflation-its-feds-fault
Or, perhaps an off the wall uneducated guess at another form of inflation would the diluted economic value of human capital by the importation of unskilled labor and concurrently the lowering of education value by the Common Core Program (the Dumbing of America). More people/currency/no skills going after fewer jobs. In a SHTF situation it’s your skills that are valuable.
“In a SHTF situation it’s your skills that are valuable” in a free barter system. Tangibles are good as long as they last, then someone has to produce them. Natural resources are good if you have someone who knows how to use them.
Then again, Henry Ford said to the effect “If I need skills, I hire them”, in a assembly line situation.
The bottom of the hierarchy in a productive world would the end of a gun barrel.
The Fed only facilitates deficit spending by Congress. Wall Street banks receive every dollar of deficit spending as (embezzled) profit hidden by the FRBNY.
Ref. https://thedailycoin.org/2018/08/16/a-look-at-the-federal-reserve-through-a-different-lens/.
Higher prices will be from the tariffs and I don’t consider that inflation. I expect higher prices, but in return job security and increase wages to offset the tariffs.
To add a little fine-tuning to the excellent work John Williams does on ShadowStats.com, the chapwoodindex.com breaks down inflation by its effects in the major cities, year by year, plus five year averages:
http://www.chapwoodindex.com
That will tell you very closely how much purchasing power in your dollars is being stolen from you. We have a federal government addicted to lying to the population for longer than any of us have been alive, whether it’s to fund warfare, welfare, or the politically favored.
In the 1600s various kings of England learned the hard way that their population would only stomach taxation up to a certain level, but beyond that would bring out the torches and pitchforks. So the problem was how to steal more purchasing power from the population without losing the king’s head. The answer came in 1694 with the creation of the Bank of England, with secret shareholders and the monopoly police power of the government to shut down any protest over the counterfeiting of the currency, plus the general ignorance of the population in the face of a seemingly complex, anonymous and distant method of stealing their purchasing power.
To learn how that model of counterfeiting by government made its way to this country, read any or all of these books:
The Creature from Jekyll Island by G. Edward Griffin (5th edition)
The Case Against the Fed, by Murray Rothbard
The Secrets of the Federal Reserve, by Eustace Mullins
I would suggest trying the free inter-library loan process first, before deciding whether to spend any money on books from Amazon.
It’s not hard to figure out why no tax-funded government controlled public school will never cover this history which would indict the US government’s addiction to monetary thievery since 1913, let alone discuss ways to defend your lifetime of earnings against that giant octopus which is the only major power that lays claim to your earnings regardless of where in the world you choose to work as long as you are burdened with US citizenship.
Might be time to go to the used paperback bookstore and look for Howard Ruff’s works. I recall a title: How to Prosper in the Coming Bad Years. Many timeless strategies are presented.
Don’t forget the shrinking of the package and selling it at the same price is also inflationalry but is done to fool us(not sure who is fooled by getting 750g or cheese that no long ago was 1kg for the same price). This is done to fool the CPI into the same price aka no inflation but the amount is less….
Inflation started before the Obama administration left office. Food manufacturers were already putting less ingredients inyo noticed to smaller packages for the same price. Have yo noticed that coffee cans and cereal boxes have gotten smaller latele with less ingredients in them lately?
Daisy, I look forward to more DIY articles. We love your practical approach to prepping and life in general. Thanks or all you do.
Talk about packaging. Look at the bags of chips in the chip aisle at stores. Most bags are only half full. The disclaimer is that the bags are sold by weight. I call bovine fecal matter on that one.
I have such a love-hate relationship with this kind of article. On one hand it is good information to be aware of. On the other hand the advice is like: stop going to Starbucks! Don’t eat out!
Lady. I don’t smoke, drink, do drugs, attend concerts, buy anything new, or eat out. I drink water. I make all my own food. I buy whatever the hell I can for less than a dollar a pound for a protein. Eggs are pretty frigging crucial to me. I fish even when the weather is shit. I raise 75% of my produce. Someone gets injured? Tough shit, get the med kit. Someone gets sick? Well I sure hope sleep and soup cures it. My clothes are hand made or from a thrift store. Every single moment of every @*%!ing day is devoted to bringing in extra income. My hobbies are for sale. My pets are to sell. My gardening is so we can buy less. I stay with my folks because I am one of those filthy, horrible, lazy millennials. The five of us scrounging together year in and year out manage to just barely stay above water.
I have years of experience in a job no-one wants. The truck is about to die, the fridge is held together with prayers. We just managed to scrape up enough to fill the propane for winter.
But please tell me how my lust for coffee (…that I don’t drink) is bankrupting me. Go ahead, I’ll wait.
—-
Clearly I am in a crotchety mood today. Sorry Daisy. I’m sure it is great advice for other folk.
I sometimes just wish that those of us who try and try and try wouldn’t be completely dismissed or vaguely referenced as a statistic. But that would probably make for one bummer of an article.
Dear Garden Nut:
The last thing in the world I meant was to be insulting, and I’m sure you know that. I know that many people with your level of frugality are in an untenable situation and I don’t know how to help other than teaching more skills (but you likely already know these skills and have been doing them for years) or trying to help the rest of the world see that this situation is not something that is your fault.
I do have this article for dire circumstances but it seems you’ve managed to avoid this situation due to your wisdom and hard work.
I want to help – truly – but it seems like you know more about this situation than I do. Would you like to consider writing an article for me? You could share a perspective that I cannot. If you’d like to discuss this, my email address is daisyluther2 at gmail
I wish you the very best and I’ll keep thinking about this in the hopes I can come up with something more useful.
I can relate to GardenNut! I see people waste their money and time continuously and then whine and cry because they don’t have or can’t get some useless item; they want others to bail them out.
We are frugal and we reuse, repurpose and repair until the item can’t give one more use. We don’t don’t buy designer coffee for $5.00; we don’t even do K-cups at $1.00 each, we have the old fashioned drip coffee maker that makes coffee for about 15 cents a cup. Most of our clothes come from thrift stores and are repurposed. About the only thing we buy new are boots, socks and underwear. We don’t spend money we don’t have, so sometimes we do without, but as a result we have no debt. Most people are in debt up to their eyeballs and whine and cry about it.
We don’t purchase any of the items in your list of rising prices; we don’t knowingly buy anything from China; we don’t do processed foods and my truck is 26 years old. If we spend money it is on reusable, tangible items that we consider absolute necessities such as tools, food production/preservation, clothing production/shoe repair and repair parts for the vehicles. These are all skills that can be bartered and will keep us alive and thriving if a disaster or crisis event occurs. I thank God every day for His blessings to our family and that I don’t have to live in Venezuela.
Correction: Inflation is an increase of the money supply and results in a sustained increase in the general level of prices for goods and services .
What I try to do, is if I run out of something or need something, I look on line to see if I can reproduce it at home or make it myself. If someone else made it, it is possible! If I did not do this, my family would survive well on one income.
I saw a debate on line between a person who screen handle was the name of a luxury imported wine, and a local. The luxury wine person was decrying the local until the local said that a visit to McDonalds was an expensive luxury which he couldn’t afford. That shut-up Mr. luxury wine.
The reality is that there’s no real wealth without production. Not consumption, production.
As for inflation, watch out for food prices. From other sources, there’s a major decrease in world wide food production in the last year due to weather. People need to eat, and those who have the money will bid up the prices for their food. People who are hungry will do crazy things, like starting world wars. Produce as much as you can, or other products that can be bartered for food.