The Real Inflation Rate and What to Do About It

A little over a month ago we did a quick poll on what our readers thought the real rate of inflation was. The idea for polling our readers came from the disconnect between the official government rate of around 1% and what some had told me they were experiencing first hand.

Thank you to everyone who participated, particularly those who shared frustrating examples of the ever-increasing cost of living. There were close to 100 pages of reader comments, and I read them all... every single word.

This week's column is primarily written by you, our loyal readers. You will recognize the reader comments as they are indented. Here is one example to get us started:

I bought a down jacket from L.L. Bean four years ago for $100. Today, that same jacket is $250. You know you have inflation when even the price of down is up!

The weighted average for our reader-reported inflation rate is 8.07%. We are rounding this to 8%, and calling it the Money Forever Reader Poll Inflation Rate. We will use this rate in examples and graphs throughout the year, along with the BLS Rate and the Shadow Government Statistics' alternate rate.

I know our rate is unscientific, but I trust our readers more than I trust the Bureau of Labor and Statistics. In addition, Vedran Vuk, our senior research analyst at Miller’s Money Forever prepared the graph below showing the distribution of responses. We were hoping for a bell-shaped curve, but you will notice it stops with 23.6% of the respondents reporting that they believe inflation is 11% or higher. In light of this, we will add higher rate choices the next time we run our survey.

Time to Hear from Our Readers

Some readers disagreed with the rate options presented in the survey, apparently believing we are experiencing deflation:

There is no choice for 0-1%, -1%-0%, etc. I have found prices to be deflationary. Consider what my family buys on a regular basis and the trend since last year. Food: +1-2%; Gas: flat; Consumer electronics: -10 to -20%; Wood pellets: flat; Cord of wood: -10%; Kids' preschool and babysitting: flat; Propane fuel for heat/hot water/cooking: -25%; Labor for electricians/plumbers/landscaping: flat; Electric bill: flat; Construction materials: -5%; Skiing: +3%.

Many of the responses varied based on where the reader lives.

I track all my expenses using Quicken. My expenses in 2012 have gone up as follows: Groceries, +10%; utilities and property taxes, +9%; gas/diesel for vehicles, +1%.

I chose that example because of the property taxes. Many folks mentioned real-estate tax increases. In my case I have two homes, one in Illinois and one in Florida. Both were assessed at lower rates after the 2008 real-estate crash. My FL real-estate taxes have decreased accordingly. However, in IL they just changed the formula, and my taxes keep going up despite the decreased value of my home. Like many of the examples, it depends on where you live.

There were hundreds of examples of price increases due to smaller package sizes and/or reduced quality.

I am retired now, so my principal purchases are food, gas, and some clothing. … As to clothing, while Kohl's pricing looks great, the cotton thread count in Dockers pants is way down, and they wear and fray out a lot sooner.

One reader mentioned how much easier it is to carry home $100 in groceries, while another said he thought he was just getting stronger.

It looks like the cost of hosting a party is increasing rapidly.

A one-pound bag of Lay's Potato Chips used to cost $0.99. It is now 10.5 oz. and costs $4.99 if you can't find it on sale.

Stroh's beer cost me $4.39 a 12-pack at Food Lion before I left for Australia for 17 months in April 2011. It now costs $8.89 – up 100%. Schlitz and Pabst Blue Ribbon also went up 100%.

Nuts that used to cost $9.99 at Costco now cost $18.99.

There are specific items that have gone much higher: quality cheeses have gone up double digits.

My favorite cheese (Hoffman Sharp Cheddar) had a price jump of about 12% – about the same for Bass Ale.

The cheapest wine in California known as "2-buck Chuck" recently went against its famous name and raised the price from $1.99 to $2.49! That's a 25% increase.

Many folks mentioned the cost of meat.

Groceries are the worst – but not all groceries. Three years ago, when I moved here, I could catch bacon on sale for $1.79/lb. Now they advertise it for $3.50 for a 12-oz package.

I asked the guy at the meat counter if they were making bacon from "gold-plated" pigs. The "sale" price on fryers is 50% (that's fifty) percent higher than last winter.

And then eggs were mentioned.

I live in David, Panama, and while the cost of living here is generally less than in most of the US, we have seen real inflation in three years. Here are some examples of price increases in the past year or two: a dozen eggs, from $1.59 to $2.09; a pound of good coffee beans, from $5.79 to $6.49; a pound of tomatoes or potatoes from the produce stand, from $.50 to $.80; a gallon of milk, from $3.99 to $4.49. Some things have not changed much, such as meat, poultry, and canned and dry goods.

Some folks went bananas.

I judge real inflation by checking the price per pound of bananas at Fred Meyer's. That price has increased from 39 cents per pound at the beginning of last year to 59 cents per pound, i.e., around 50%.

As a monitor I use the price of bananas. They have gone from $.58/lb. to $.77/lb. in 2012. That would be a 33% increase.

Of course many mentioned McDonald's and other fast-food restaurants.

I don't know the percentages, but a filet o' fish at the local McDonald's is $4.16 (including tax) – this is at Lahaina Maui (Hawaii)... the combo meals go up to almost $8.00; this is considered cheap?

And not just in Hawaii.

What I've used to gauge real inflation for several years now is the extra-value meals at McDonald's. Between 1 January, 2012 and 1 January, 2013, average prices have increased by over 8%.

This reader takes on McDonald's, Subway, and Taco Bell.

I have a couple of examples based on a few of my semi-regular activities. The first would be lunch. Personally I like Taco Bell. I know, I can already hear the groans, but frankly, I like the food and the value. At times in the past when my schedule would dictate a quick lunch out, Taco Bell would cost me $2.75. My standard order was a taco, burrito, & medium Pepsi. I loved the fact that I could eat for under $3.00. Now, I like the fact that I can eat lunch for under $4.00, but I don't love it. The second item is that our local McDonald's recently increased my "senior coffee" from 37 cents to 55 cents. All right, call me cheap. I still like my senior coffee, but I no longer love it. Oh, I almost forgot. Subway recently had their "customer appreciation" promotion for December. They advertised $2.00 for one of two sandwiches, but at our local store they said they had to charge $2.55 because of "shipping costs"? I guess they don't appreciate us here as much as other places.

Restaurants in general were mentioned several times.

My favorite breakfast, 3 eggs & bacon in November 2012, $4.25; 3 eggs & bacon in January 2013, $6.00.

Biggest surprise over the last twelve months is the cost of dinner at our local Tex-Mex restaurant. The same basic dinners with a cocktail for each of us has risen 25%. We know the owner well, so we felt we could ask about the increased prices. He told us that everything he uses to provide his food to the customer has risen more than 20%, and then there is his staff. The word "lie" describes to a T what the government is doing to Americans, and I find it despicable.

Over the past two years prices on the restaurant menus have increased three times. We can't afford to eat out anymore; back to the slow cooker. Damn, I hate to wash dishes! Even dish soap has gone up.

Seems that folks in Australia have differing opinions.

I live in Australia, but I couldn't resist chucking in my 2 cents worth as we share the same crime here of manipulated government CPI numbers. In the last year my estimates for price rises living in Sydney are as follows. General household & food costs, + 10%. Restaurant food, + 10-20%. Beer at a pub, + 15%. Public transport, + 5%. Electricity bill, + 30%. Council rates, + 10%. Doctor's consultation, + 15%. Petrol, + 10%. Internet ADSL costs, + 10% (to be fair this one increased last year for the first time in 6 years). On average the cost of living here has easily gone up over 10% in the last year, and the government's reported CPI figure is 2.2%, laughable.

If anything, I'd say we are in a deflation. All the goods and services I access (except food and power) seem to be falling. I live in Australia, so maybe our (ridiculously) high dollar might be in play; I'd like to believe the inflation story, but here it just ain't so...

And now around the globe to Europe.

I live in Norway. Large plate of sushi used to cost 155 kroner (this was in 2011). In 2012 it costs 170 kroner, almost a 10% increase. Needless to say, I don't eat out as often as I would like to now, and if I do I order a smaller size! Inflation is rampant worldwide, not just the US.

Right now the Norwegian kroner and the Australian dollar are doing well against the US dollar, yet some still believe they are experiencing inflation.

Some readers mentioned the cost of feeding pets and other animals is also on the rise. I have a cousin who owns three horses. While we all love our pets, when the time comes for them to head for the great kennel in the sky, I wonder how much economics will factor into the decision about replacing them.

I own four dogs. Dog food has increased from $17.00 to $25.00. Again, this is for the same bag of dog food!

Big increase in feed prices for chicken feed and calf feed. I paid $13 for a 50# bag of poultry pelleted feed a year ago. I paid $17.80 yesterday. Calf feed went up over $13 for a 100# bag in August and has stayed there.

We shop for groceries at a DISCOUNT, no-frills store, which is much less expensive than the grocery stores. In the past year, we have noted increases, gradually, in items that never went up. Cat food in a can has increased from $0.27 per can to $.50. We live in the Sacramento area.

There are a lot of people who are already making tough decisions and adjusting.

The increase in private, grade-school tuition is my biggest issue. It's becoming too expensive to be a good Catholic.

As a single-income family of 5, I have no choice but to constantly think about saving. The little things we do change our lifestyles to compensate change in our inflation rate. When we switch from beef to pork we can't measure the true rate, because we have saved some of the difference financially while making up the difference in lifestyle. I have always done my own oil changes on my vehicles. I now change the oil filter every other oil change to save the cost of the filter. No more takeout lunches, and only one takeout coffee a day. Save, save, save! Sometimes I feel like a lean, mean saving machine, which doesn't make life as much of a pleasure as it could be. However not to complain; it is working. I am working, and the wolf is still stuck outside the door.

We defend ourselves from inflation as much as possible by investing in home essentials, like energy. We've installed a solar water heater to eliminate the cost (and inflation exposure) of propane to heat water, installed a high-efficiency pool pump to dramatically reduce electricity consumption, and unplug appliances when not in use to eliminate phantom loads. These investments are guaranteed, inflation-proof, and tax free. The best kind… in my opinion.

Greens fees at all three of the golf courses I play at regularly have increased about 10% over what they were 13 months ago. This has caused me to cut my three rounds weekly down to two. Also, local restaurants have boosted prices 5 to 15%. We now eat out once every two weeks, on average.

I gift my wife with a simple bouquet of flowers each week, at a cost of a mere $4.99. (How simple can I get?) Last week, the cost of that simple bouquet went from $4.99 to $5.99 – for the same flowers, same number, same wrapping. That's a 20% increase!

Umm, keep it up! It promotes family harmony.

You certainly get the picture. Some folks added a bit of humor.

I think a button with "WIN" on it would solve the problem, don't you? I mean... the government has to DO something, and a button is the clear answer.

Who would do a silly thing like that?

Some offered analogies.

In the first phase of a tsunami (The "drawback"), people stand around the beach, wondering what is going on. Things look different from the shore. They can't put their finger on exactly what is wrong and they are unaware of the devastation about to crash down upon them. This is where I feel that we, as a country, are regarding inflation. People are beginning to realize that something is happening, but they are not sure why, and they are certainly not aware of the danger just ahead. Just like during a tsunami, they should take this opportunity to head, very quickly, for higher ground.

The inflation in the USA feels like something is "stalking" you – not all the time; but it is definitely there.

And some understand the effects very clearly.

Anyone who has been living on SS [Social Security] checks since 2000 will tell you the same thing. They could not live on those checks alone, and depended on the interest they received from their savings accounts or CDs. They cannot do this any longer; they now need to withdraw principal or redeem some CDs just to make ends meet. This is not meant to debate the merits of the SS system, but it shows how inflation and the currency manipulation by the federal government is affecting those on fixed incomes with no hope of getting a raise. These people understand the effects of inflation more than any other group. These people live with fear every day, understanding they have little control over their financial future, while watching their life savings slowly vanish every year.

So there you have it – a representative sample from our readers. Food, pet food, health care, insurance, taxes, and more are on the rise for the most of us. One respondent lamented that most of the increases are for staples and not the kind of things you can easily ignore.

What Can We Do?

First and foremost, don't get too discouraged, and never, ever give up! We all may have to cut back, downsize, go back to work, or find alternate sources of income like annuities and reverse mortgages. We saved up our nest eggs with the idea that it would supplement our Social Security or pension, and now it is getting more difficult.

Personally, I will be damned if I am going to throw in the towel! If it takes more time to study and learn about investments, so be it. I made that commitment to my wife and myself – and to you. I have learned the value of top-quality research, and the Money Forever portfolio is reaping the benefits of that research (we just recently celebrated when the 5th of our 6 dividend stocks raised its dividend payout amount). If you would like to learn more about our portfolio and premium publication and how to use our system to stay ahead of rising inflation, I invite you to click here.

There are millions of retirees, seniors, and savers who share the same concerns. We are all fighting the inflation tsunami. Our subscribers are very like-minded when it comes to fighting for their portfolios; none of us is throwing in the towel.

In the next article I will break down the results and suggest ways to meet the challenges brought on by inflation.

By: Dennis Miller

24 thoughts on “The Real Inflation Rate and What to Do About It




      1. Not only in April just, even there are so many other fools days too, whenever government announce, all that days can be celebrated like a fools day.

  2. Consumers can't do anything but to manage well their finances to adjust with this inflation. Consumers should be ready all the time to adjust for any changes. That is why a good personal finance management is very much needed to make lives easier.

    1. We are in a 30 year and running period of low inflation with no reason to think it will end soon. Inflation will pick up when the middle class has dollars outstripping our production capabilities, which is not the trend the country has been headed in since Reagan was elected.

  3. My wife and I are coming up on 60. The way I tell inflation, is by what my wife will no longer (refuses) to bring home from the store. This last year it has been happening more and more. We're by no means poor, but my wife is "tough, old school." Her remark when I ask why she would not buy a certain food item anymore, is "I won't pay that!!!" The latest was a simple bag of Pistachio's. We were walking through Walgreen's and my wife pointed at an end cap rack. The price was $5.75 for a bag. My wife said as she pointed at the price... "See???"

    1. Don't forget that inflation is the smaller part of our economic issues. The middle class stopped getting pay raises in 1970 and got charged a larger percentage of the taxes starting 1980. If the average person making $50,000 a year today was making the same portion of his value creation as 1970 (as measured by company revenues) he would be making $80,000 a year to $90,000 a year. I don't know about you, but I sure wouldn't mind that kind of bump in my income. I would go right out and buy an extra bag of pistachio's!

        1. Mea culpa. I was thinking about my response to the article rather than the technical details. In that case, I would be willing to shell out...

  4. When the FED electronically creates $4 billion daily to paper over deflation, we get a liquidity driven market that creates some uneven inflation. When the focus is maintained on a poor economy, year-over-year real time salary and wages going down relative to inflation, declining metals prices, especially copper, and last week's declining consumer confidence at the lowest level since Dec, 2011 (fell to 71.8 from 77.6 in Feb, with the expectation of an increase to 78).

    So carried away with this bullish market are some of the financial news stations that at least one reported an actual increase in consumer confidence., e.g. Liz Clamen on the Fox Business channel.

    This market mania has the hallmarks of a top.

    1. "When the FED electronically creates $4 billion daily to paper over deflation, "

      When I read the first half, I was expecting to disagree. You are right to mention that if the fed quit printing lots of money deflation would be the result and it would be a very destructive form of deflation. However here is the good news. The money the fed is printing has very little leverage to help because of the low interest rates we have already. Therefore if it stopped the damage would be less than you would expect based on the raw numbers. To put this another way, you could replace very large amounts of supply-side liquidity with relatively small amounts of demand-side liquidity to get the same effect. A simple flat 20% import tariff and a flat 20% revenue tax on any company with highest paid to average worker pay ratio greater than 10 (including captive suppliers and subsidiaries) would do far more than most realize to bring growth back.

      1. "This market mania has the hallmarks of a top."

        I forgot to reply to this part. I will believe we are at a market top when volatility gets large compared with upward movement. I have not seen any reliable way to find tops based on macroeconomic understanding because even when you are right, sometimes the market is not.

  5. With the current inflation going so fast, I would
    Suggest to pay your debts off as quick as you can,
    Such as house bonds, car loans and credit cards because
    As inflation goes up, it makes it more and more difficult to pay your
    Loans off. More money goes into inflation and less money to pay your debts off.
    Once your debts are paid, there is less burden on your shoulders.

    1. This only applies to variable rate loans and debt. With most fixed rate car and mortgage loans the exact opposite is true. In fact, this is the whole point of QE and forcing interest rates to artificially and insanely low rates - to stimulate buying now so that monthly payments later will be far cheaper in deflated dollars.

      If you are a bank (or individual) that has access to easy credit at low rates now, it would benefit you to get up to your eyeballs in low rate debt to buy assets that are assured to explode if and when (reported) inflation finally does catch fire. It has already happened with equities, but the problem is that you can not guess beforehand exactly when and where this inflation will present itself: equities, real estate, oil and energy, commodities, precious metals, etc.

      Rational thought and historical precedence suggests that a lot of this new money should be fleeing overpriced treasuries and equities and going into gold and silver, but empirical evidence proves that the majority of investors are either irrational and outright stupid OR the Fed and other powerful banking entities have been manipulating these markets through "painting the charts" by selling large amounts of paper gold contracts and suspect ETF funds and propping up stock markets at key technical levels (btw, I did not join the ranks of "gold bug conspiracy theorists" until around Dec 2012 when such blatant and consistent manipulations could no longer be explained otherwise.)

      Either way, the Ponzi scheme of the U.S. $ will collapse in time, but apparently not before the euro or yen, so it is difficult to say how global events will transpire because all fiat currencies are now inherently worthless, and most major banks would be insolvent without "cheating" the rules for capital requirements and swapping worthless debt for different colored (but still worthless) debt to the Fed's balance sheet. Since the $dollar is slightly less worthless now than others than it is measured against, it still has more fictional value. I believe the longer this illusion plays out, the more severe the consequences will be in the end, and thus a global currency crisis will happen much more quickly than most realize is possible. That will be the time to own gold, silver and other hard assets "outside the system". As the Cypriots recently found out - everyone's bank deposits are subject to confiscation at a moments notice by desperate and rapacious governments and bankers...

      1. Excellent reply. Anyone who borrowed big at 6% around the year 2000 and bought gold at about $300. or $400. per ounce will tell you that.

        I just wish someone in government here in Canada had had the sense to issue a few billion dollars worth of new Canadian Government Bonds back then paying 6% or so and used the proceeds to buy gold at $300. to $500. per ounce and silver at $5.00 or $6.00. and taken delivery. This country would be debt free at this point.

        1. forgot investing in gold silver or any other assets, only bread and butter will remain as a hard assets, so keep investing in a grosser goods only

        2. Or for that matter they could have issued bonds to buy Intel and Microsoft in the late 80s.

          Ultimately a government bases it's revenues on its ability to tax, so if the political will is there to do the right thing, then a government's strength is limited only by the nation's strength.

  6. This is scary. Half of his readers identify the inflation rate as > 9%. A 9% inflation rate doubles every 8 years, which means that even the low end of that prediction means a 16x increase since 1980. I saw milk at the grocery store for $3 recently. Does anybody remember twenty cent gallons of milk in 1980? A meal at McDonald's is around $5-6. Does anybody remember 30 cent meals in 1980? A computer is around $700 today. How about those $40 computers that were flying around in 1980? Urban apartment rent is $500-$1500 depending on where you are talking about. Was it in the $35-$100 range in 1980?

    It seems that people have been influenced by the talking heads talking about the problems of inflation without providing any numbers.

    1. You are suggesting that there has been 9% inflation every year since 1980, which is not the issue here. This article and these comments refer to current rates of inflation, not historical rates over a relatively long period of time.

      1. Maybe, but I have been hearing these "inflation is far higher than we think it is" stories since 1980. Aren't the official inflation numbers similar to the inflation numbers for most of that period?

        If prices jump by 10% one year and drop by the same next year, I don't consider that inflation. Obviously the missing data is what that survey would have responded to the same questions at intervals over the last thirty years.

        I personally would wish to err differently than the author. I would tend to want to err on the side of trained statisticians rather than on the side of angry villagers with pitchforks.

  7. This article is just about as true as they come and to boot it's well written but If you click the "I invite you button " it lead you to thousands of words of long winded nothings that eventually offer some kind of subscription to what looks like a dividend portfolio for 99 bucks a month.

  8. Some prices have gone down, that is true. I pay less for certain kinds of fish and steak. Some prices have remained flat like electricity. But the worst for me is the price of heating oil (I pay $4.49 a gal) and gasoline for the car. I quip to friends that God has me under house arrest. I can't drive anywhere. Public transportation is up and so are property taxes. The property tax mainly goes to pay raising pensions, or so it seems.

    1. Property taxes are regressive. If that were changed to a general wealth tax, it would ease the burdens of many seniors trying to retire, as the tax on houses would be spread to a tax on additionally stocks and bonds.

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