“Abdul-Jabbar couldn’t’ve made these prices…with a sky hook.” — From a song by Johnny Guitar Watson
Do things cost more or less than they did a year ago? Let’s see.
Costs associated with housing went up 2.8 percent. But it costs a whopping 7.7 percent more to heat and cool it. (Honey, cancel the purchase of that new McMansion!). Rental costs escalated 2.9 percent. Homeowner’s insurance has gone up by 3.5 percent. Water, sewer and trash collection services have increased in cost by 3.4 percent.
Here’s more. Health and hospital related services both cost 4.7 percent more than they did a year ago. It costs 2.3 percent more to dine out than it did last year. But grocery food skyrocketed across the board: meat prices jumped by 5.2 percent and fresh fruits by 5 percent. A haircut will cost you 1.4 percent more. A drink and a smoke is more expensive (We may need both before we’re done here). Alcohol went up by 1.1 percent and tobacco and smoking products by 3.7 percent. Tuition escalated in price by 3.3 percent. Whew.
Now, consider things that have decreased in price. Seems impossible, right? Expenses related to transportation are actually 1.2 percent less expensive than a year ago. New vehicles are down in price by 0.5 percent. Motor fuel has declined in price by 4.6 percent (let’s wait until summer is over to declare victory on this one). Wireless and landline telephone services? Now they’re 2.3 percent less expensive. Shoes? A percent less costly. Household furnishings have declined in price by 1.5 percent. Airline fares have decreased by 4.1 percent (Hard to believe, right?).
What’s it all mean? We do indeed have significant inflation in essential (non-discretionary) service items, like heat and air conditioning, food and health insurance. But many frequently used services actually cost less, like gas and cell phones. So inflation is really not rampant. In fact, most economists consider deflation a greater current threat to the economy. What is causing us to think that prices are outrageous is that wages are not keeping pace with the cost of living. A person earning robust compensation is meeting his grocery bill with ease. But without a quality paycheck, everything looks expensive.
Inflation not only impacts the cost of living, it also provides savvy investors with significant opportunities to profit from rising prices. If a company can charge more for its products each year, shareholders can enjoy a raise as well and not just feel the sting at the cash register. Prudent investors and advisors seek out those sectors and companies that have inflexible demand, or whose customers have to continue buying their products or services, whether the price of the product goes up 5 percent or not. As always, an investor’s age, risk tolerance, unique financial goals and time horizon should be considered.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.