CPI Inflation Rate at an All Time High

What does this mean for you and me?

What Happened?

The numbers are out! The “official”published consumer price index (CPI) rating for November 2021 was released earlier this month. The CPI rating for the “all items index” has increased to 6.8% which is up from 6.2% in October. This has been the highest inflation rate in 40 years! In addition, the November 2021 “Core” inflation rating (all items excluding energy and food) increased to 4.9% which is up from 4.6% in October.

The CPI measures the cost of a wide-ranging basket of goods and services. A more in-depth view of inflation can be found here: Inflation - Public Enemy # 1

Since May 2021, we have seen a rising wave of inflation above 5% and many think inflation will continue to increase into 2022 (Figure 1). While the “official” rating is at 6.8% for November 2021, many people on the ground (example: restaurant owners, grocery store owners, business owners, etc) feel as if inflation is between 12-15%. Some business have decided to also increase their prices to help offset their costs for keeping their business alive. For example, last week I replaced all four tires on my Honda Odyssey (yes, I drive a soccer mom van) and the cost to replace them set me back $1200 (you would think these tires were made of gold). Speaking to the tire salesman, he mentioned that the tires were the same, however the cost to ship the tires to Hawaii increased 45% and the cost had to be passed on to the consumer.

Figure 1 - CPI Inflation Rate

The indexes for gasoline, shelter, used cars and trucks, and car rentals were among the largest contributors (Figure 2). Food, something that we all need as a necessity to survive is up 6.1% (if you prepare food at home) and 6.4% (eating out at a restaurant). Food products such as bacon, beef, and pork have increased more than 15% and gasoline prices in Hawaii (at the time of this writing) is averaging $4.40 a gallon. What this means is unless you do not need to eat, need shelter to keep you warm and safe, or “energy” resources, you are not impacted by the rising cost of inflation. As it may seem that the cost of goods and resources are increasing, the honest truth is that the US dollar is losing value whereby we need to expend more dollars just to pay for the same good or service.

Figure 2 - CPI Goods/Services

Time to retire the word “Transitory”

Jerome Powell told US lawmakers that it would probably be a good time to retire the word “transitory”. Simply put, “transitory” means not permanent. We were assured there would be no inflation from the result of the increase of the money supply. A few months later, we were told there would be a small increase in inflation that is necessary to improve the economy (government’s words, not mine), and then we were told inflation would continue to increase within the next couple of months. Now we are told that the government will retire the word “transitory” because they need to explain more clearly what they mean “when talking about inflation”. What this tells me is that the government is confused and unsure of what is happening and that we will continue to see inflation increasing well into 2022.

What does this mean for me?

The only way to combat inflation is to invest in investable assets such as real estate, gold/silver, stocks, or Bitcoin. Holding your savings in dollars is no longer a path to financial freedom. Our government will continue to spend (yes, we have a spending problem), we will continue to print more money, and inflation will continue to increase. The US dollar will continue to de-value which will in turn decrease your spending power. For example, Bitcoin is up 400% within the last year. Stocks such as the S&P 500 is about 90% up from March 2020. The wealthy love inflation as the majority of the people's spending is on inflationary goods: food, gas, water, clothing, etc. As consumers consume these goods and pay higher prices, the value of the asset increases. Consumption ends up leading people in a worse economic situation while investing which leads them in creating and preserving wealth. As Pomp mentioned, “Inflation is your friend if you’re an investor and your enemy if you’re a consumer”.

It is time to rise up, take ownership of your wealth, and protect it with investable assets.