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Inflation Rate Low? It Depends on What You Buy

Want to pick a fight with a senior citizen? Just try suggesting to them that inflation is really low in this country. It’s amazing how even the most lethargic senior will come alive to discuss this topic.

We have all heard from the Federal Reserve that inflation expectations are “well anchored.” We’ve also heard how inflation has been running well below the Fed target of 2 percent for a long time now. In May, the Consumer Price Index (CPI) was 2.1 percent higher than a year ago. Sounds pretty low.

But suppose you retired at the end of 2008, about 5.5 years ago. Since you retired, you have been earning virtually nothing on savings accounts, CDs and annuities. But costs have been escalating substantially. Some more than others. Some MUCH more than others. Some things have gone down during the same time period.

From December 2008 until March 2014, the overall CPI has increased by 13.2 percent. If you are on a fixed income with a pension and/or Social Security, this means that your income buys only 87 percent of the stuff you bought when you retired.

Let’s take a look at some specific items to see how prices have changed since December 2008.

First let’s look at the stuff we eat.

  • Food we eat at home is up 9.5 percent.
  • Uncooked ground beef is up 30.6 percent.
  • Bacon and sausage are up 32.3 percent.
  • Eggs are up 12.5 percent.
  • Hot dogs are up 10.2 percent.
  • Ice cream is up 5.9 percent.
  • Carbonated drinks are up 4.6 percent.
  • Coffee is up 7.1 percent.

So the frugal retiree will need to stay away from steak, hamburger and bacon and go a little heavier on hot dogs, ice cream and soda pop.

Going to a restaurant has gotten more expensive too: up 12.3 percent.

Second, how about the cost of living at home?

  • Homeowners/tenants insurance is up 18.1 percent.
  • Electricity is up 9.7 percent.
  • Water and sewer service is up 35.4 percent.
  • Garbage and trash collection is up 14.6 percent.
  • Appliances are DOWN 9.2 percent.
  • Clocks and lamps are DOWN 27.5 percent.
  • Dishes and flatware are DOWN 25 percent.

Again, the frugal retiree is struggling to keep up with the increasing costs of electricity, sewer and water service, and insurance. But they can offset these financial challenges by buying a lot of clocks, lamps and dishes.

Third, how about traveling to see the grandchildren?

  • Gasoline has gone up 117.3 percent.
  • Tires have gone up 7.5 percent.
  • Car insurance has gone up 24.1 percent.
  • Motor vehicle registration/license fees are up 18.1 percent.
  • Airline tickets are up 31.7 percent.
  • Intercity public transportation is down 2.1 percent.

So forget about flying to see anyone. Driving is pretty expensive too. But the good news is that taking the bus is cheap. So retirees can redefine travel as seeing many new places in the local community on the city bus.

Fourth, how about the clothes we wear?

  • Men’s apparel is up 10.8 percent.
  • Men’s suits are up just 3 percent.
  • Women’s apparel is up 12.3 percent.
  • Shoes are up 8.8 percent.

Prices of clothes and shoes have gone up, but it’s still not an excuse to continue wearing that Members Only jacket that was the rage in the ’90s.

Fifth, how much have health care costs increased since December 2008?

  • Prescription drugs are up 19.6 percent.
  • Physicians’ services are up 14 percent.
  • In-patient hospital costs are up 41.6 percent.
  • Nursing homes and adult day care are up 19.5 percent.
  • Health insurance premiums are up 9.6 percent.

Unfortunately, there is no good news here. Health care costs continue to eat up a larger and larger portion of the budget of American retirees.

Sixth, what about the fun things we like to do?

  • Good news: televisions are down 67.2 percent.
  • Bad news: cable TV and radio services are up 16.3 percent.
  • Good news: the cost of pets and pet accessories are down 3.2 percent.
  • Bad news: the cost of pet food is up 8.5 percent.
  • Good news: sporting goods are down 2.5 percent.
  • Good news: cameras are down 28.3 percent.
  • Good news: toys are down 25.1 percent.
  • Bad news: admissions to sporting events are up 10.7 percent.
  • Bad news: newspapers and magazines are up 26.1 percent.
  • Bad news: postage is up 27.4 percent.
  • Good news: telephone services are unchanged.
  • Good news: personal computers are down 39.2 percent.
  • Bad news (for smokers): cigarettes are up 49.7 percent.

So what’s the takeaway from this analysis on the underlying price indices that make up the CPI? It depends on your lifestyle profile. Here are three that I’ve come up with based on price trends in America. I’m sure there are more.

RETIREE PROFILE ONE: “Living on the Edge”

If you are retired and like to smoke, eat bacon, read magazines, watch cable TV, take some medicine, visit a hospital occasionally, fly on airplanes and drive a car, your cost of living has skyrocketed in the five and a half years since you retired.

RETIREE PROFILE TWO: “The Mr. Rogers Style”

If you are retired and own a home, travel for fun and to see the grandkids, eat steak and hamburgers, watch cable TV, attend some sporting events, take some medicine and occasionally visit a hospital, your cost of living has also increased dramatically in the past five and a half years.

RETIREE PROFILE THREE: “The Frugal American”

The low-cost strategy to achieve the American dream is to never get sick and never travel by car or airplane. Always ride the bus, but just within your city limits. Focus your diet on ice cream, hot dogs and carbonated drinks. For a splurge, have a cup of coffee. Buy a new television, camera and computer every year, because the prices fall every year. Buy lots of clocks and dishes too. Stay away from the post office and magazines. Tell the kids to bring the grandkids to visit you. Let them pay the airfare and the gasoline. And whatever you do, DON’T SMOKE.

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