When it comes to inflation, the government seems to want to have its cake and eat it too. Since the financial crisis, reported inflation rates have been quite low, but this doesn’t necessarily tell the whole story of what is going on with product prices and pricing. And while income levels have largely stagnated over the past decade, anyone who goes out shopping on a regular basis or has to fill their vehicle up with gas likely sees price inflation in their everyday lives. So which is it? Is inflation next to nothing, as the federal government reports, or is it chomping away at our hard-earned dollars?
According to the Bureau of Labor Statistics, their February 2014 Consumer Price Index report noted, “Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment.”
This is nice for lending institutions and the government itself as it can help them keep things like interest rates and interest payments on debt low. Holders of things like savings accounts and inflation-based government savings bonds know what I’m talking about. But it’s not necessarily a great thing for savers.
But isn’t our money losing out in savings accounts?
Our savings account might earn us 30 cents in interest each month if we’re lucky. I know that it’s a pathetically pitiful amount, and certain financial advisors might say that this money is slowly being eaten away at by inflation. This sort of reasoning is a great way to push people into riskier investments such as the stock market. But wouldn’t such logic go directly against what the government is telling us, that inflation is extremely low and not really pushing prices higher? So which is it? You can’t have low reported inflation, but then use inflation as an excuse to push people’s money out of savings and into stocks or to purchase consumer products, can you?
There is real inflation all around us
I’m of the belief that inflation is very real and that it is all around us. Why do I believe this? I believe it because I see it almost daily. I see it in the gasoline prices when filling up the family vehicle. I see it when shopping at the grocery store. I see it when paying the utility bills. I see it in the cost of new vehicles. I see it in the housing market.
So if the government wants to have its cake and eat it to when it comes to inflation, we try to do the same. We hedge our bets and play a variety of inflationary bets. We use any extra cash to pay down higher interest debt so that we’re not leaving it “asleep” in savings accounts. When that higher-interest debt is gone, we might look to stock up on extra household goods that are on sale when we’re shopping. Buying things with longer shelf lives when they’re on sale can be good bets against inflationary risks. And let’s say that the government suddenly decides that inflation exists. Well, some I-series government savings bonds might not be a bad thing to have some money in. And what if inflation really starts to take off? Well, a few US gold and silver coins could suddenly rise dramatically in price. And by gauging all our expenses throughout the year, we’re able to determine our personal rate of inflation, which tells us just how and where inflation is affecting us most.
So just because the government might not want to acknowledge inflationary pressures, we’re keeping our eyes open and not just listening to the economists when it comes to inflation.
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The author is not an economist or licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.