Sedona Arizona

Inflation at 9.1% - now what?

Today’s CPI report shows inflation is up 9.1% from one year ago. 

It’s the highest rate in more than 40 years – again – and it appears we may still not yet have seen peak inflation.

As a quick refresher, CPI (Consumer Price Index) measures the overall change in consumer prices over time based on a representative basket of goods and services.

I’ve read a lot of commentary today and have seen a lot of spin on the reality of what this 9.1% increase means in real terms.

Most of what I’ve read has been a bad a mix of bad economic theory and bad political finger pointing.

Because inflation is transitory…

As an example: one economist argued on Twitter that this level of inflation means the amount you owe on your mortgage is now 9.1% less because, in theory, inflation essentially lowers the value of that loan amount.

He then asked why more people aren’t recognizing and celebrating this.

My answer (tongue in cheek): “because inflation is transitory.” By this logic, as inflation lowers, the value of that loan increases. That’s not a cause for celebration.

In another bad take, the White House said inflation is “too high”, but gas prices have “fallen 40 cents since mid-June.” Nice consolation prize.

Follow up bad take, every Republican blames the Administration. It’s a mid-term election year, after all.

And make no mistake… these elections will be weighed by how Americans feel about whether or not their lives are better now than before. All frustrations over issues like Roe v. Wade, gun policy, energy policy, and foreign policy will roll up into how people feel at the pump and the grocery check out line.

Americans do not wait well. Voting on the promise of “change” – even if the word is never clearly defined or realized – seems like the perfect remedy when things aren’t going well.

No matter where you stand politically, this will not be resolved by some sweet whistling politician. There are no quick shortcuts. And, it’s being felt globally.

Because inflation hasn’t been transitory…

For the economist talking about your debt being worth less (in theory) the truth is very few people look at the long-term debt. Why? Because you are looking at what it costs TODAY – not 30 years from now – to cover basic expenses AND have some sort of lifestyle where possible.

And, in real terms, the amount you truly owe is NOT reduced. In fact, one might argue it costs more in real terms because you are buying with dollars that have less purchasing power!

And for gas prices going down 40 cents or roughly 8%, great… well, except gas prices rose somewhere around 60% year over year, so are we to celebrate now only paying maybe 50% more than last summer???

“But wages are higher!” Okay – so how’s your 3% or 5% raise holding up?

Here’s a live look at what it costs to live today vs. one year ago:


Maybe inflation will eventually be transitory…

First, it was Covid. Then, supply chain because of Covid. Oil prices. Greedy corporations. Russia. Now, [insert whatever feels good].

Is it any coincidence that the federal government made direct payments to individuals totaling $931 billion in 2020 and 2021?

The point I want to make here is these things are more complex than a sound bite.

The Fed will undoubtedly consider another increase, possibly as high as 100bps (1%), which will have a downstream impact on many parts of the economy. It may likely get worse before it gets better. If you run the Fed playbook through the 70s and early 80s, rates had to go drastically high to break persistent inflation.

If that happens again, once inflation comes back down it will indeed to appear to have been transitory after all.

What does inflation mean to you?

And that is the question no one with a loud microphone seems to be asking right now. Why? Because it has to be spun into what it should mean to you.

But, that spin is not the reality across your dinner table, is it?

Nor in the grocery check out line. How about when you pay for living expenses and have less real dollars left over?

Is it weighing on your decisions to make life moves, such as buying a home, considering retirement needs, taking that overdue vacation, or even starting a business?

What about the reality of not knowing how long this high inflation will last, or how high it might go before peaking?

So I’ll ask – what does inflation at these levels mean to you? Click here to share your thoughts with me.

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Author: Dale Shafer II, CFP®, APMA®, CDFA®

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