We all know that inflation raises prices, but how many of us really understand the compounding effect that it has on the cost of everyday items? What other factors influence prices besides official inflation numbers? And how many of us know how we may protect ourselves from inflation and, at the same time, make the most of inflationary pressures as we plan for the future?
Inflation Through the Years
Let’s take a brief look at individual inflation rates from 1990 to 2018, at the cumulative rate, and at some specific numbers over just the past 28 years.
Comparing prior years, inflation stood at 6.1% in 1990, 3.4% in 2000, 1.5% in 2010, and is expected to be around 2% for 2018. On their own, those numbers may not look too daunting, but when you look at the cumulative effect that it has over the years, small increases over time can have a huge impact.
By adding together each year’s inflation rate, we can see how much the cost of an ordinary $20 item increases over the years. Since 2010, the cumulative inflation rate is 15.4%, so the same item that cost $20 just eight years ago would now cost $23.08. Going back to 2000, the cumulative rate has been 46.1%, raising the cost to $29.22. Looking back another 10 years, we see a cumulative inflation rate of 92.5%. This means the cost to buy that $20 item from 1990 would today cost $38.50.
To put that into perspective, it means that to live in 2018 the way people did in 1990, just taking inflation into account, pay increases would have had to average 3.3% every single year. Which means that a salary of $100,000 in 1990 would need to be $248,204 in 2018. If a person’s annual raises did not average at least that much, then their savings and investments would have had to make up the difference, just to stay even. Since 2000, incomes would have had to increase every year by 2.56% to stay even.
What About Specific Items?
Inflation is not the only factor that affects prices. A company’s research and development has to be paid for, marketing costs, product launches, building new plants, funding benefit schemes, and the value of innovations to existing and new products or services all impact prices. Let’s take a look at some specific product prices today compared to their prices in the year 2000. All figures are based on the US Bureau of Labor Statistics.
- Apples cost 58.43% more this year than they did in 2000
- Bakery products increased by 53.48%
- Coffee increased by 26.96%
- Educational supplies for school and college increased by 148.99%
- Funeral expenses rose by 75.33%
- Hospital services rose by 183.95%
You can see how the price of other items from the Consumer Price Index have changed over the years here.
No one knows what the future holds, but by planning ahead and analyzing your present versus future financial situation may be a good way to feel confident about what lies ahead.
If you’re ready to take a look at your situation and work out a plan for the future, contact Sharkey, Howes & Javer today to meet with a CERTIFIED FINANCIAL PLANNER™.