The Carr Report: Inflationary prices reduce discretionary income

by Damon Carr, For New Pittsburgh Courier

During the week of this writing, I was out and about running errands. I decided to stop at a mini market for something to drink. I purchased an Arizona Tea—half lemonade, half tea. It was gratifying to my taste and it quenched my thirst.  I decided to take a picture of the Arizona Tea can. I posted the picture on Facebook with the caption, “Sitting here enjoying the one thing inflation hasn’t touched – Arizona Iced Tea, still $.99.”

The post garnered some reactions and comments. One person said, “Make your own tea and lemonade.” I responded jokingly, “Tea bags and lemons prices are up too.” Another person added to my comment, “Don’t forget the price of sugar.” Two days later, one person tagged me in a post and another person uploaded a meme to my Arizona Ice Tea Post. They shared the same meme. It was an Arizona Tea meme. The picture had two Arizona Ice Tea cans. One marked with the price of $.99. The other marked with the price of $1.29. The caption read, “It’s officially time to start worrying!”  This post garnered more reactions and comments than my original post. One person said, “I just want to know what we are blaming it on, shipping blockage, Russia/Ukrainian war, COVID, CPU chips? Why is everything going up? Another person said, “Damon, it’s your fault. The moment you mentioned the only thing inflation hasn’t touched was Arizona Tea, they raised the price.”

Turns out, it wasn’t my fault. In fact, the Arizona Tea price remains $.99 in the U.S. The image of the two Arizona Tea cans that went viral is actually Arizona Tea in Canada. The can with the price tag of $.99 is several years old. The $1.29 price tag is the actual cost of the tea in Canada, adjusted for U.S. exchange rate. My original point remains the same. Arizona Tea might be the only thing inflation hasn’t touched.

Everybody is seeing and feeling the impact from higher prices at the gas pump. People posting pictures of how much it cost to fill up the gas tank is trending on social media. For the past month, there’s been a host of memes on social media poking fun at high gas prices. A recent meme I posted stated, “Where can I apply for “fuel” stamps.” Not only are gas prices higher, it feels like we’re getting less miles per gallon. Although I still fill my tank up when I purchase gasoline, it appears that I’m buying more gas, more often.

After going grocery shopping, my wife shared with me that she purchased practically the same items she buys weekly at the grocery store, yet the total cost was $125 more. We go grocery shopping weekly. If our total cost has risen, $125 per week, that’s $500 per month more on groceries and household items that we’re spending.

For the person who posed the question, “Why is everything going up?” The answer is INFLATION. For the remainder of this article, I’ll attempt to explain inflation and how it impacts prices, purchasing power, and your discretionary income. 

What is inflation? Inflation is the general rise in prices of the cost of goods and services. Inflation reduces the purchasing power of your hard-earned dollars. Inflation is a normal part of the economy. It helps foster stability and growth within the economy. The problem arises when prices rise too high or too fast. Inflation happens as a result of an imbalance in supply and demand. There are two primary drivers of inflation: Cost-Push Inflation and Demand Pull Inflation. 

Cost-Push Inflation: Prices increase when the cost to make a product or provide a service increases. The increased cost is passed on to the consumer by increasing those prices and services. Example of this: I was at a Chinese restaurant the other day. They had a sign posted that read: Due to the increased price for chicken, all meals that includes chicken has increased

Demand-Pull Inflation: Demand for goods and services increases but supply remains the same. Example of this would be the current real estate market. There are more buyers in the markets than there are houses for sale. The end result: real estate prices are soaring with many people paying higher than market value for various properties.

Since the inception of COVID-19, we’ve experienced just about everything imaginable that affects supply and demand which ultimately impacts prices. We’ve experienced companies completely halting production which impacts supply. We’ve experienced issues with importing various products and goods into our country that are necessary to produce other products and goods. The computer microchip comes to mind. The computer microchip reduced the ability to manufacture cars which reduced the supply of cars. Demand for cars was still the same resulting in higher prices for both used and new cars. We’ve had an influx of money into our economy by way of stimulus checks, lower interest rates, student loan forbearance. All of these things facilitated an increase in the money supply to encourage people to spend money. This increased demand. From the pandemic to high unemployment to supply chain issues to the Russia-Ukraine War,  product production and service providers have been unable to consistently keep up with demand.

The end result is inflation. The Consumer Price Index recently reported inflation to be at 8.6 percent. That’s the highest inflation rate since 1981. The average inflation rate has been 3.8 percent over the past 60 years.

The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The U.S. Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending.

Below are some of the most recently reported increase in cost for various categories:

• All Items: 8.6 percent
• Food: 10.1 percent
• Food at home: 11.9 percent
• Food away from home: 7.4 percent
• Gasoline: 48 percent
• Rent: 5.2 percent
• Air Travel: 37 percent
• New Vehicles: 12.6 percent
• Used Vehicles: 16.1 percent
• Electricity: 12 percent
• Natural Gas (piped): 30.2 percent

If you’re feeling poorer than usual these days, you’re not alone. Inflation has increased prices on practically everything. Increased prices have reduced purchasing power. We’re paying more for less.  Employee wages haven’t kept pace with inflation.  Average cost of goods and services is up 8.6 percent. Average wage increase is up 3.4 percent. Long story short. We have less discretionary income. Things are feeling tighter than normal.

Solution: Increase income: Side hustle or part-time job. Reduce expenses and non-essential spending. Do a better job of managing your hard-earned dollars. This too shall pass.

(Damon Carr, Money Coach can be reached @ 412-216-1013 or visit his website @ www.damonmoneycoach.com)

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