Your Financial Future: The growing costs of inflation
Close to 67% of U.S. economy is driven by consumer purchases.
Every consumer in the country is feeling the negative affect of record high inflation. The last government report was a little lower than the month before, but the inflation rate was still over 8%. The government goal is to have a rate of about 2%. Most of this month蘑菇视频 reduction was due to lower gasoline prices.
It is much easier to see a commodity such as gasoline go down in cost than many other elements in the economy. This is because supply can be increased by pumping or refining more fuel. Also, demand can decrease because of the end of the summer vacation season or other similar situations.
Many other factors hurting inflation are much harder control. Wages have gone up significantly because of a shortage of employees. Rents have gone up, as has the purchase price of some real estate. Auto prices have increased because of a shortage of semi-conductors. These types of things will likely be permanently higher cost items.
As with most things in the economy, there are negotiations between competing parties about how to deal with inflation. Retailer have contracts with many of their suppliers about the cost of goods that will ultimately be sold to their consumers. Manufacturers compete against each other to have their products featured in the most desirable locations within a store. They also want to be featured in ads and promotions. To remain consistent, retailers often sign contracts guaranteeing certain purchase prices.
Inflation has pushed up the cost to all parties involved. Rising material costs, and labor and shipping expenses cause prices to rise. This creates friction between the manufacturers and retailers. In the United Kingdom, Kraft Heinz proposed increases of as much as 30%. Supermarket giant Tesco pushed back and did not stock some item for a while. Similar things have happened in other areas of the world. Often compromises are made that make neither side happy as participants search for a solution.
Grocery prices have had some of the largest price increases. Eggs are up 38%, coffee more than 20% and lunch meat more than 18%. The battle between the parties is to protect sales volume and make the necessary profit to stay in business. Sometimes cost can be managed by changing packaging, increasing lead time or promoting certain items that have experienced lower cost increases. Sometimes consumers are hit with 鈥渟hrinkflation鈥� where less product is packaged in a similar size package.
As expected, consumers are not happy about all of the price increases. A recent survey by consulting firm Deloitte found, 鈥�56% of Americans feel companies are raising prices more than necessary to boost profits.鈥�
This week, a new law was passed that hopes to deal with inflation. It will not reduce inflation in the short term. Some of the Medicare prescription costs that can be negotiated do not take affect for four years. It, like all bills, benefits some people at the expense of others. Subsidized cost reductions that help some will increase taxes, and price restraints hurt others. Hopefully it helps some in the long term.
To help your family budget, make a shopping list and stick to it. Be flexible in meal planning so that you can buy things on sale. Pay attention when shopping and use apps and coupons to help reduce food costs.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.