My Rising Living Expenses….How about you?

[Viscount St. Albans]

Over last 2.5 years (2010 – Aug 2012)

My living expenses have been rising about 6% per year while my living standard feels exactly the same.

Anybody else feeling the pinch of rising living expenses? That is to say, living expenses rising faster than the official inflation rate of something like 2%/year.

[Golden Oxen]

I certainly am. Are you leaving out food and oil in your calculations like the government ? Please do not forget to figure in the shrinking of all contents in packages by anywhere from 30% to 50%. 5oz Tuna can instead of nine and the new 11.5 oz pound of coffee. John Williams at Shadow Stats is an expert in these matters and his inflation figure is nearer to 10%. Whatever the government figures are absurd and believed by only the simple.

[Viscount St. Albans]

The 6% annual growth rate includes all of my expenses.

I haven’t broken down the expenses into individual components.

My rent has not changed for the past 2.5 years, so if I removed my rent expenditure from the calculation, then the annual growth rate would be even higher than 6%.

TAE doesn’t include living expenses in its definition of inflation/deflation.

So, according to the TAE definition, we’re in deflation, and the living expenses of my fixed lifestyle are definitely rising in nominal terms. So in real terms, my non-rent living expenses are going through the roof (i.e. >> 6%). Rent is about 20% of total yearly expenditure.

[skipbreakfast]

Viscount St. Albans post=4962 wrote: TAE doesn’t include living expenses in its definition of inflation/deflation.

Hey wait a second. I shouldn’t take too many liberties trying to speak for TAE, but from everything I’ve learned from Ilargi’s and Stoneleigh’s essays and talks, they never include ANY “expenses” in their definition of inflation/deflation. It simply does not have anything to do with their DEFINITION (which has everything more to do with the growth/reduction of money supply). Rather, prices of things are an EFFECT of inflation/deflation.

Some things can rise in price in a deflation, even while the effect of deflation is a general pressure downwards on prices over all. But prices of groceries are NOT part of the definition. Again, prices of individual things have great variability, but inflating/deflating MONEY SUPPLY (including credit) is what constitutes inflation/deflation, which expansion/redution of money supply has knock-on effects on prices, just not always in perfectly proportional ways.

Viscount, you should start by reading the TAE primers and watch the really good DVD “Century of Challenges” if you want to debate the inflation/deflation question in this venue, because you don’t seem to have taken any of it in yet.

[gezelle]

I live in a small 1950’s era house in a major city on what ammounts to a small 1950’s income when adjusted for inflation.
I have kept careful records of all my expenditures for the last 15 years.
Costs rose slowly until the last 4/5 when they really began to shoot up.
Electric, water and natural gas have rise 30 to 40 percent despite the fact that I have dropped my usage by 30 to 40 percent in all areas! The same with gas for the car. Insurances up 10 ish but RE taxes up 40% despite the corresponding 30% drop is housing prices here. Still manageable with out a mortgage and any other debt.
Food sticker price [ includes meat, eggs cheese, dairy flour, beans and veg] for all organic, and local [within 50 to 150 miles] is up 3 to 5% as is most other items. This is less tha supermarket prices for big ag food and ready prepared items, but I was paying more already for the type, origen and quality of the food already.
However, other than what I pay out to officialdom, as I spend the rest of my money at small family owned concerns for just about everything, butcher to shoe repair, pet supplies to vacation cabins, I get between 5 an 15% discount because I pay cash up front sometimes more.
I also am able to trade goods and services for my very varied skill set, so I am still doing ok.
Bank of the Backyard investments paying better than anyother to be sure.

[Viscount St. Albans]

@ skipbreakfast

Definitions: Inflation/Deflation are 1 concept. Cost of living (that includes the sum of all living costs — not simply gas or bread etc.) is a 2nd concept. I suspect we’ve been in deflation with a rising cost of living since 2009. It’s a curious situation, which is why I raised it.

Inflation/Deflation — (Change in Money Supply + Credit and velocity of money) See everything TAE has said previously. I have no arguments with their definitions. It all sounds good to me.

Living Expenses (i.e. cost-of-living) — Entirely different concept. How much are you spending for a fixed annual lifestyle? Compare your annual expenses from 2009, 2010, 2011, and the first 3/4 of 2012.

My lifestyle hasn’t perceptibly changed. My yearly expenses (which includes everything: rent, clothing, food, utilities, transportation, taxes etc) have been rising at a 6% annual rate.

It’s simple math. We may be in deflation, as defined by TAE, but my cost of living is rising. I expect that’s true for most people (but I could be wrong). And the topic is a source of curiosity to me.
That’s all I was really probing with this post — searching for an anecdotal survey of other readers here. I wasn’t looking to disagree about TAE’s definitions of inflation/deflation which are known.

For this thought experiment to work, don’t focus on comparing the price of milk or the price of gas or the of price toilet paper from one year to the next. There’s too much volatility in the individual components of living expense to gain any useful insight. Instead, add all that stuff together as well as taxes and fees and light bulbs and kitchen cleanser and toothpaste etc. into one big annual expenditure. Calculate growth rate.

[skipbreakfast]

Ah, that distinction is totally reasonable to me: the rise/fall of your personal cost of living versus monetary inflation/deflation. But it did sound like you were critiquing the definition of inflation/deflation which underlies TAE’s analysis of finance and economics.

I think it’s still important to continually reflect upon the TAE perspective on inflation/deflation. Because the rise in basic costs of living can be a distraction from the much bigger problems we’re about to face. Yes, the problems heading our way are bigger (for most of us in the developed world) than whether tomatoes or toothpaste went up in price this year.

I don’t want to dismiss the impact of rising grocery prices on people’s lives, which especially impacts the poor. When you’re starving, no other issue is more pressing. Nevertheless, a lot of people cite rising grocery costs as proof of monetary inflation (i.e., expanding money supply) with the implication that we are heading towards an inflationary collapse. This is a red-herring. And it’s a dangerous one. Because it tricks us into making the WRONG preparations for what is coming–and what is coming is a deflationary collapse.

For the poor, rising food prices (triggered by many things, like drought, and not necessarily money supply) devastate their lives. It’s unsustainable and leads to riots and malnutrition and worse. However, for anyone who earns or has amassed enough money to pay for food with any money left over, the rising grocery costs factor less and less into your financial equation. For example, tomatoes may rise in price costing you another $100 per year. But if you’re also shopping for a house, the cost of that house is dropping in most places much more than $100 per year. Similarly, prices of things like cars, travel, computers, clothing and services like plumbers and dentists are dropping faster. And these price drops are like dominoes falling throughout our society, as they trigger job losses, business failures, abandonment of infrastructural improvements–basically society breaks down if it goes broke, and when business fails and there are no tax revenues to collect from the people, we’re broke.

Most importantly, determining whether we are in a true deflation or inflation has profound implications for how we prepare our finances for the worst that is yet to come. Because if we are in a deflation, any wealth you have above-and-beyond your grocery money needs to be preserved in a liquid form (cash) under your control. But if you succumb to the argument that grocery price-increases are proof-positive of some sort of hyperinflation, then you will seriously misjudge the real imminent threat and surely lose most if not all of your wealth. Preparing for inflation is very different than preparing for deflation.

This is the main reason I bristle at the debates about rising food costs, especially in a forum about deflation (because there are many more blogs about inflation you can participate in online). Grocery costs are a very immediate and visceral aspect in our lives but it’s one that actually distracts us from the truth–that assets are going down in price, and you won’t have any money at all if you don’t properly judge the inflationary/deflationary outcome. Eventually, many food prices will drop as no one will have the money to buy them at any price. As TAE has mentioned many times, however, such necessities drop the least and the slowest since it is the only thing we cannot live without. Eventually, however, lower food prices won’t matter to a lot of people who didn’t prepare, because they will have no money at all, especially if they bought equities or investment properties or other speculative assets that are supposed to protect you in an inflation.

[Viscount St. Albans]

@ skipbreakfast

I raised this topic in large part because I agree with the general thrust of the TAE deflation argument.

I too bristle at the hyperinflation argument that encourages the hoarding of precious metals as a defense against ‘death of the dollar’ and other such hyperbolic silliness.

I’m a TAE, Mish, Hugh Hendry reader. My capital is invested in US Treasuries.

All that said, I was surprised to discover the actual rate of increase in my living expenses when I actually did the numbers. I expected that the growth in annual expenditure (cost of living) would turn out to be less than CPI — given that I agree with the TAE deflation theme, that was what I expected.

It turns out I was wrong, and the numbers revealed a 6% rate of increase in annual expenses since 2010. I didn’t notice the rise because I’m generally able to save about 50% of my after tax income. As long as my treasury direct account was growing at a rate that intuitively felt right, I didn’t bother to delve deeper into my yearly expenses and the surprisingly steep annual growth rate.

Perhaps, if I have more time, it would be interesting to break down what exactly is responsible for my 6% increase. It’s definitely not rent. Removing rent would cause an even bigger increase in annual expense growth rate.

Perhaps it’s expectation drift toward gluttony. Possible. I’ll need to break down the numbers further to see what’s going on.

Anybody else tracking expense trends?

[skipbreakfast]

Viscount St. Albans post=4997 wrote: @ skipbreakfast

I raised this topic in large part because I agree with the general thrust of the TAE deflation argument. […]

All that said, I was surprised to discover the actual rate of increase in my living expenses when I actually did the numbers. I expected that the growth in annual expenditure (cost of living) would turn out to be less than CPI — given that I agree with the TAE deflation theme, that was what I expected.

Then you must forgive me for going on my lengthy argument against inflation. Because I actually totally 100% agree with you that it’s interesting to question why some living costs are increasing in a deflation…except that it’s nearly impossible to avoid people reading into such a conversation that we must be in an inflation. Because this is what most people think:

“Anyone who thinks that inflation doesn’t exist is a complete idiot.”

That from a post from Sovereign Man via Zero Hedge: https://www.zerohedge.com/news/guest-post-some-clear-thinking-debt

Of course, Sovereign Man then goes on to warn of hyperinflation because of money printing, and inexplicably because of “capital controls, wage and price controls, pension confiscation, and selective default”. Uh, all of those are seriously DEFLATIONARY conditions (other than the money printing of course). How do you get inflation with major capital controls?! Capital controls IMPEDE our spending, which is pretty much a guarantee of deflation.

Anyhow, glad you’re on the same page, Viscount.

Of course, some of my living expenses are going way up in New Zealand too. But I’m not surprised. I’m not even going to consider the effects of major droughts–the effects on prices haven’t yet hit. Instead, I’d attribute such cost increases to massive, speculative, credit-backed bets on food commodities. We’ve clearly hit some bubble territory in food commodities.

Some argue that QE is expanding the money supply, and that it is in turn responsible for food price inflation. But there is a lot of evidence that the QE is only plugging the holes of a deflating (or illiquid) money supply. And the speculative credit has chosen some commodities to inflate, while abandoning others in the vacuum left behind by the real estate and tech stock implosions. I expect some food prices to fall as the credit backing those speculative bets evaporates. Let’s remember that there is still a lot of credit money chasing returns out there. Credit supply will continue to be eroded at a faster clip, and that will make it hard for any commodity, no matter what the stuff is made of, to continue to go higher in price. Hey, oil is pretty imperative to our lives, and yet oil has dropped significantly from the highs.

Starving populations can increase food costs, because that is higher demand. But it’s not like the population of Earth suddenly woke up and realized it was starving last year! Obviously if it were totally connected with supply and demand, prices would have been going up in lockstep with population. Instead, population has expanded steadily, and food prices have spiked only recently.

Finally, I’ll say in regard to other “costs of living” like taxes–I fully expect these to INCREASE as governments get more desperate under deflationary pressures. In a deflation, there is LESS money to go around, but the government wants to keep the gig going. They have no choice, therefore, but to try to raise rates. Property taxes will rise. Water rates will rise. Eventually no one can pay them. They fall because the whole system collapses in a deflation. In the meantime, I’d be afraid to own much property if only because the property taxes will skyrocket, to say nothing of the price drop in the asset itself.

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