Inflation — Shrinking but the Whole Story isn’t Being Told

Inflation is one of the biggest issues we’re all hearing about, and seeing candidates talk about this election season. It is true that inflation has fallen quite a bit the last couple of years. For the year, the CPI has risen just 2.4% through September.

However, the Consumer Price Index (CPI) isn’t telling the whole story which is why a lot of us don’t really think things are getting all that much better.

The Bureau of Labor Statistics (BLS) gathers all of the statistics for the CPI and what it leaves out are things like increasing property taxes, interest charges on credit cards, auto and home loans, broker fees and even restaurant and other tips and some under-the-table costs like babysitters.

Also troubling is the inflation experienced by homeowners on their homeowners insurance. It continues to rise as insurers are hit with higher costs for repairs and replacements.

BLS economist, Steve Reed said what is shrinking is the cost of the items we’re buying but not the interest rates we are paying to buy them. He noted the typical interest rate is 22T%. So about $628 billion in credit card debt is rolled over, or goes unpaid, every month.

What that means is billings of dollars in credit card interest rates are not included in inflation estimates.

“The CPI is capturing the goods and services that you purchased for consumption, but there are things that affect your cost of living that are outside of that,” Reed said. “And so it can’t realistically be priced.”

Another factor is the BLS not counting the purchase of a home — or the renting of a dwelling — as an everyday expense. It’s considered an investment. So, mortgage payments of thousands of dollars a year, and sometimes equally expensive property taxes, are left out of the CPI.

That takes us back to homeowners insurance. The CPI adds the coverage paid for personal property but not for the dwelling itself. The price of the home and the monthly payments made — as we all know — are much higher.

Those two items have a huge impact on the premiums charged for that home.

Some other items not included in the CPI’s inflation calculations:

• Mandatory tips. Some restaurants make them mandatory. Many are now “advising” what your tip should be and that shaming has increased the amount of tips generated and is making your dinner out, or whatever, more expensive.
• It’s costing you more to gamble. Mega Millions ticket prices doubled in 2017 to $2 per ticket from $1. In April of next year look for them to go up to $5. Lottery ticket purchases — and huge amounts of money is spent on them — and equally dollar generating sports betting is also not included in the CPI.
• Cannabis. As an aside, we would call it marijuana, but Weekly Industry News is written in Washington State where the word marijuana has been outlawed by the Washington Legislature who considers it “racist.” So far government hasn’t done that good a job of tracking the millions spent on pot and how much we spend on legal cannabis.

Source link: Insurance Journal — https://bit.ly/4f0tLuN