The Inflation Watch

The U.S. got some economic news yesterday that is designed to unsettle those of us with more than a few years under our belts. The Consumer Price Index rose 5.4 percent in June, year over year, which was higher than analyst expectations. It’s the highest year over year increase since 2008. And while economists expected some inflation—it’s hard to avoid when stimulus checks are being sent to millions and government spending has exploded—the magnitude of the increase shown by the June data was greater than the forecasts.

Inflation data can be broken down in many ways, because of course prices for all goods and services don’t rise at uniform rates. Some observers noted that the “core” inflation rate, which strips out more volatile food and energy costs, was 4.5 percent—the highest increase since November 1991. Others argue that the rates are being driven by increases in some sectors, like in the cost of used cars, that seem to be reflecting a short-term imbalance of supply and demand that will work itself out. And still others note that the energy sector, and the skyrocketing cost of fuel, will have a ripple effect that can be expected to drive further increases in other areas, like food and many consumer goods, where transportation costs are factored in to prices. Nobody quite knows what might be coming next month, or later this year.

If, like me, you lived through the ‘70s, news about growing inflation is like fingernails on a chalkboard. An inflationary cycle means your paychecks buy less, because pay increases never quite catch up to prices, and it means the money that you’ve carefully saved and invested is worth less—a result that punishes prudent and responsible behavior. Retirees and people on fixed incomes get crushed and find that their nest egg has become a lot smaller than they thought.

And we veterans of the ‘70s and early ‘80s also remember that the cure for inflation—high interest rates and tight monetary policy that consciously stifles economic growth and produces high unemployment rates—is no treat, either.

Economists will be watching to see if this price spike is transitory, or is the first sign that we are on the road to a bad long-term inflationary period. I’ll be watching, too, and hoping that our economy isn’t cycling back to the ‘70s mode.

What in the Heck is Going On ?

Look  (both hands chopping in a downward motion) – I’ve recently retired and figure I have done everything right okay – never carried any debt except for an occasional credit card bill and my mortgage payment (considered good debt). Always lived well within my means – paid cash for all of my cars – sold my house for a good price and traded down to a small condo back in 2004 which I recently paid off.

A week or so ago the Federal Reserve released a statement saying that they are keeping interest rates at or near zero through at least mid – 2013. So basically what they’re saying is this is a great time to buy or re-finance a house – thanks Ben (Bernanke) but you see I don’t need a house right now, I have one that is paid off ! Keeping rates low means interest rates on credit cards will remain low – thanks again Ben but I don’t use my credit card except when I am taking a trip or in case of  an emergency and I always pay the one credit card I have off every month.

YOU SEE BEN WHAT I WOULD LIKE IS SOME KIND OF RETURN ON MY MONEY FOR CHOOSING TO SAVE AND IT LOOKS LIKE I AM NOT GOING TO GET A GOOD RETURN FOR AT LEAST THE NEXT COUPLE OF YEARS. BEN, I DON’T WANT TO INVEST TOO MUCH OF MY SAVINGS INTO A RISKIER INVESTMENT LIKE SAY THE STOCK MARKET BECAUSE I AM RETIRED AND I AM GOING TO NEED THE MONEY SOME TIME IN THE NEAR FUTURE – I MEAN A BIRD IN THE HAND IS WORTH TWO IN THE BUSH ISN’T IT ?

So yesterday I’m opening my mail and I come to an envelope that says – Important Information About Your Property Value 2011 Reappraisal. I’ve read numerous stories on the internet about home values dropping like rocks and of course Columbus Ohio is no different right, so I open the envelope and WHAT – my condo is now worth 25% less than what it was in 2005 the last time my property was appraised.

THIS REALLY SUCKS ! Ahhhhh – they say that blogging is therapeutic and you know what I think it is, I feel so much better now ! I wonder what tomorrow will have in store for me !!