There are none so blind as those who will not see

In my “Inflation Watch” report a couple of days ago, I noted:

Last week we heard that inflation in January hit an annual average of 7.5%, the highest on record since 1982.  That, of course, is so much bull droppings, as we’ve said in these pages many times before.  If this country still measured inflation as we did in 1980, before the inflation calculations became politicized, it would be at least double that rate.  If you apply my suggested correction factor, based upon historical reality, actual consumer purchases (as opposed to government bureaucratic assumptions), and my bitter personal experience of inflation elsewhere, the current US consumer inflation rate is probably more like 26%.  When I look at our household shopping bills and the prices of the goods we normally buy, they do, indeed reflect that level of overall increase in prices since this time last year.

I’ve had a number of e-mails from readers after that article, trying to debunk my revised inflation rate figure.  They protest that their personal consumer inflation rate, based upon what they buy, isn’t nearly that high.  Some go so far as to suggest that I’m making it up, scare-mongering, and the like.

I can only say that the reality of inflation “on the ground” currently suggests that my inflation “correction factor” of 3.5 times the “official” rate may be too low!  Here’s a selection of current news reports I found in less than five minutes online yesterday afternoon.

• Bidenflation: Truck Trailer Prices Up Nearly 30%
• Used cars cost 40.5% more than last year as gas prices rise. New car prices also climbing
• Price of Unleaded Gas Up 40.8% Under Biden; Used Cars Up 40.5%; Beef Up 16.0%
• Soaring lumber price adds nearly $19,000 to the cost of a new home
• The average size of a new mortgage just set a record, as home prices continue to climb  [“The average purchase loan size was a record $453,000”]
• Americans Spent Money Like Drunken Sailors, But Did They Outspend the Raging Inflation in Durable & Nondurable Goods? Um, No
• WHOOSH Goes the Dollar’s Purchasing Power in January as Inflation Now Infests Services

I’ve lived in a high-inflation environment before, in South Africa from the 1970’s through the first half of the 1990’s.  During that period, the inflation rate was almost always in double figures.  My monthly salary when I started work in the 1970’s (E-1 military) was low, but sufficient for my needs if I was frugal.  When I last visited South Africa, about three decades later, the same amount of local currency was sufficient only to buy me a basic low-end burger and fries at a local fast-food joint, and no soda with it.  (To put it in McDonald’s terms, I don’t mean their quarter pounder – I mean their hamburger with no frills.)  That’s what persistently high inflation does to your money, if not worse.  If you take a Weimar or Zimbabwe hyperinflation scenario, even the South African experience looks infinitely rosy by comparison.

If we’re to survive a high-inflation environment, we’re all going to have to become hyper-alert to what’s going on around us.  The old adage “If you snooze, you lose” becomes a grim daily reality in times like that.  We have to begin by accepting the reality of inflation, and not trying to evade it or pretend it isn’t so.  It’s comforting, and comfortable, to deny reality – but it’s also economic suicide.  To make our money stretch as far as possible, we’ve got to cut out of our budget anything and everything non-essential, and watch like a hawk to take advantage of sales, special offers and the like on things we really need.  At the same time, we’ve got to weigh the advantages of cash in hand versus buying now things we may need in future, even if they’re medium- to long-term needs.

For example, my vehicle currently has about 130,000 miles on its odometer.  It’s running very reliably, and I have every intention of keeping it going until it falls apart;  but to do that, I have to plan for preventive maintenance and timely replacement of parts.  I’m putting money aside so that at its next service, I can replace the shock absorbers, tie rods, etc.  If the factory-new ones have lasted this long, replacing them now means that the new ones should hopefully last equally long;  and by the time they wear out, the vehicle itself will almost certainly be worn out.  Given that inflation is increasing the cost of those parts almost every time I look, it makes sense to buy them now rather than wait until I absolutely have to, because I may not be able to afford them then.

The same applies to things like tires or other expensive consumables.  We know they’re going to go up in price, sometimes drastically, particularly if they’re imported, because the waning value of the dollar will add to their cost.  If you’re going to need them within the next year, it’s not a bad idea to buy them now and store them until you’ve wrung the last miles out of your present set.  Some people worry that if they have an accident and their vehicle’s written off, they’ll be stuck with a set of tires that won’t fit their new vehicle;  but you’ll find you can get your money back on them, and perhaps even more, by trading them in against the size you now need, or simply selling them for cash or trading them for other things you need.  I know one man who swapped a new set of tires for a brand-new freezer.  Both sides were happy with the deal.

You can’t develop that sort of perspective on the reality of your personal cost of living unless you keep your eyes open, and accept reality for what it is.  I’m sure that for most of us, if we add up the receipts for what we routinely buy each and every month, over the course of a year or two, we’ll see a personal inflation rate not far from my 3.5x multiplier of the “official” numbers (massaged for political correctness as they are).  I can only suggest that each of us should conduct that exercise regularly (I’d say at least once a quarter, if not more often) to remain alert to our personal financial situation, and plan accordingly.

Also, don’t look only at economic developments.  Political, social, cultural and other upheavals can drastically affect the economy, and the inflation rate.  As a current example, look at the online bank shutdown in Canada yesterday (which has been widely reported on independent news and social media, but about which the mainstream media in the USA and Canada are maintaining a deafening silence – almost as if they’d been told to shut up).  If you can’t use your bank account for whatever reason, and don’t have cash on hand, what are you going to do to buy what you need?  The oft-repeated advice to have enough cash on hand to cover a month or two’s expenses begins to look like sound common sense, even in a high-inflation environment (although if hyperinflation strikes, it won’t be common sense at all, because that cash will lose much of its value on a daily basis).  Miss D. and I can only afford a much smaller emergency fund than that, but we’re very glad it’s there, just in case.

Peter