Inflation—Still a Much Bigger Problem Than Many Realize

Inflation may not be as big a problem but high prices certainly are. What?? Aren’t those kind of the same thing? Nope. Dave explains.

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Listen to this video carefully. Inflation is much more damaging to people’s finances than most realize. In fact, based on interviews I see, I’m not even sure some financial-industry professionals fully get this. Or at least they don’t think it through. When inflation—defined here as rising prices—greatly exceeds wage gains, obviously, people’s purchasing power declines.

Then, when inflation falls, as it has recently, you hear normal people and even some “pundits” say, “The inflation problem is now under control. It’s down to less than 3%, and not a major issue for consumers.” What?? The current inflation rate is not a huge problem, but the recent inflation is still a HUGE issue.

And I mean, HUGE. If you’re bitten by a bug (inflation) and your eyes swell up dramatically, so much so that you can’t see, when the swelling stops increasing by much, would you say it’s no longer a problem? Of course not, don’t be a weirdo. You still can’t see! You still have all the swelling. You’ll only think it isn’t a problem when the swelling has fully subsided.

If you have a huge flood (inflation) in your house and there’s three feet of water on your main floor, would you think it was no longer a problem if you found the leak and plugged it so only a little more was coming in? Would you say that three feet of water was no longer a concern? Of course not. Again, don’t be a weirdo.

Well, when prices rise dramatically for several years, way faster than wages, do you think it’s no longer a problem when the price rises slow down to a pace around(ish) wage growth? Of course not. Don’t be a weirdo. You’re still paying way higher prices than you were a few years ago relative to your wages.

You still have the swelling. You still have the three feet of water. You’re still squeezed to the nth degree. The non-falling swelling stops you from seeing. The non-falling prices stop you from saving or even meeting your obligations. Hey, I’m glad the inflation rate has come down somewhat. But what people really need is deflation or at least years of wage growth exceeding inflation levels.

Frankly, both are unlikely. Times are very tight for a lot of people. By the way, do you actually believe the government figures on the CPI front? You think the inflation numbers are accurate? Yeah, and I’m a three handicap in golf.