Have we reached the tipping point?

[Fishindude77]

Worked in construction for 40 years. Price escalation of materials is nothing new, we always dealt with it.
Most never care or notice, till they have a project and it hits home and affects them personally.

There is a very high demand for construction currently and any contractor worth a hoot is booked solid.

[corn18]

I'm trying to figure out how inflation is a bad thing for me. My military pension has a COLA that matches the social security COLA. I checked and it has exactly matched the CPI inflation rate sine 2008. When my SS kicks in, it will be the same. So my income is keeping up with inflation.

If inflation reaches 2.75%, my mortgage will be free money.

I guess my 60/40 portfolio will be impacted by inflation. I have no bond funds right now. I am 100% stable value in my 401k which is yielding 2% right now. So if bond rates rise and bond NAVs fall, I don't care so much. I am not into growth stocks which are getting killed right now. I am a total market index investor with 25% international.

So from my POV, I wouldn't be too worried if inflation popped up to 3%. I think anything over that will cause a collapse of the monetary/debt market and could lead to a serious recession/depression.

Here's what I think is going to happen:

2021: Fed will leave rates where they are and the market will grow and inflation will creep up. Secular inflation will remain, but I don't see broad hyper inflation as a risk. Growth stocks will continue to get hammered with rising bond yields.

2022: Fed will have to raise rates and the market will go down 40%. Or they do nothing and set us up for a recession in 2023/2024. Or they never do anything and inflation gets above 5% and all the debt floating around starts to default and we go into a depression.

The solution is for the Fed to start raising rates in late 2021/early 2022. Tank the market short term to save the economy long term. I don't think they have the guts to do that.

There is absolutely nothing wrong with 5% 10 year treasury rates and 3% inflation. We had that for a long time before the 2007 Great Recession. Getting there will be rather painful.

Buckle up, buttercup. It's going to be a fun 5 years.

[disneysteve]

I'm trying to figure out how inflation is a bad thing for me. My military pension has a COLA that matches the social security COLA. I checked and it has exactly matched the CPI inflation rate sine 2008. When my SS kicks in, it will be the same. So my income is keeping up with inflation.

One potential problem is what TH was alluding to. If the "official" government inflation rate is 2%, that's great, but if the real inflation rate for the things that you actually spend your money on is more like 4 or 5%, your income isn't really keeping up and you're still losing buying power.

There are many, for example, who think SS should be tied to the CPE-E which is a measure geared specifically toward costs typically associated with older people.

There are a lot of ways to measure inflation and they don't all measure the same thing or in the same way.

[TexasHusker]

I'm trying to figure out how inflation is a bad thing for me. My military pension has a COLA that matches the social security COLA. I checked and it has exactly matched the CPI inflation rate sine 2008. When my SS kicks in, it will be the same. So my income is keeping up with inflation.

If inflation reaches 2.75%, my mortgage will be free money.

I guess my 60/40 portfolio will be impacted by inflation. I have no bond funds right now. I am 100% stable value in my 401k which is yielding 2% right now. So if bond rates rise and bond NAVs fall, I don't care so much. I am not into growth stocks which are getting killed right now. I am a total market index investor with 25% international.

So from my POV, I wouldn't be too worried if inflation popped up to 3%. I think anything over that will cause a collapse of the monetary/debt market and could lead to a serious recession/depression.

Here's what I think is going to happen:

2021: Fed will leave rates where they are and the market will grow and inflation will creep up. Secular inflation will remain, but I don't see broad hyper inflation as a risk. Growth stocks will continue to get hammered with rising bond yields.

2022: Fed will have to raise rates and the market will go down 40%. Or they do nothing and set us up for a recession in 2023/2024. Or they never do anything and inflation gets above 5% and all the debt floating around starts to default and we go into a depression.

The solution is for the Fed to start raising rates in late 2021/early 2022. Tank the market short term to save the economy long term. I don't think they have the guts to do that.

There is absolutely nothing wrong with 5% 10 year treasury rates and 3% inflation. We had that for a long time before the 2007 Great Recession. Getting there will be rather painful.

Buckle up, buttercup. It's going to be a fun 5 years.

For you and me, you are absolutely correct. We are going to make our money from inflation or otherwise. But you and me are likely in the upper tier of incomes and net worth. We are going to make our money from inflation or deflation, because we have the means to do so. When my business expenses go up - supplies, labor, etc., I just have to pass those on to the customers - most of them middle class - with higher prices. I really have no choice, as in a typically 30 day month, 27 of those days, all of the revenue is spoken for by expenses. Those last two to three days are mine if we have managed well. If you take those two or three days away from me due to higher costs, I either go out of business, cut the heck out of labor (which results in poor service), or raise prices. It's really pretty easy math.

[corn18]

One potential problem is what TH was alluding to. If the "official" government inflation rate is 2%, that's great, but if the real inflation rate for the things that you actually spend your money on is more like 4 or 5%, your income isn't really keeping up and you're still losing buying power.

There are many, for example, who think SS should be tied to the CPE-E which is a measure geared specifically toward costs typically associated with older people.

There are a lot of ways to measure inflation and they don't all measure the same thing or in the same way.

Sure. Maybe. CPI-E is weighted differently than CPI-W. The CPI-E is based on costs for people over 62. This is what I found:

"The CPI-E tends to grow more quickly than the CPI-W in most years, because it more accurately accounts for the percentage of income that retirees spend on healthcare and housing costs. Those two categories tend to increase several times faster than inflation, and tend to take a bigger share of retiree income. The CPI-E tends to give less weight to items like gasoline and consumer electronics which have fallen significantly in recent months and helped drag down the COLA for 2020."

I am not concerned with health care since it is free for me and my wife for life. Not sure how my housing costs go up since I own a home. Property taxes and insurance will go up, but I have had that since I bought my first house in 1990.

I did look up the out of pocket health care expenses as a percentage of income for those on Medicare and that is quite scary. Even on Medicare, the OOP medical expenses are rising much faster than CPI-W.

[disneysteve]

I did look up the out of pocket health care expenses as a percentage of income for those on Medicare and that is quite scary. Even on Medicare, the OOP medical expenses are rising much faster than CPI-W.

Your personal situation is rare. You have a solid pension, guaranteed health care, SS, and a substantial portfolio. 99% of folks aren't that fortunate.

[LivingAlmostLarge]

It's been weird the inflation. Inflation I think is up BUT in some cases not. My cousin in 7/2019 moved to our city and paid $2800/month rent for a 1 bedroom and $250/month parking. She signed a 15 month lease. Her lease was up in October 2020 and she moved with her boyfriend to a 2 bedroom apartment across the street for the deal. When she looked in 7/2019 the rent for 2 bedroom was $4300/month, she got it for in October 2020 for $3500 (2 months free rent concessions and free parking for 1 year!). One would argue it was deflation.

[corn18]

Your personal situation is rare. You have a solid pension, guaranteed health care, SS, and a substantial portfolio. 99% of folks aren't that fortunate.

That's true. At this point, I am being very selfish trying to figure out my situation. As you can tell from my schizophrenic posting on early-retirement.org, I am looking for the bullet I can't see. At some point, I'll have to chill out and get on with retirement.

[disneysteve]

That's true. At this point, I am being very selfish trying to figure out my situation. As you can tell from my schizophrenic posting on early-retirement.org, I am looking for the bullet I can't see. At some point, I'll have to chill out and get on with retirement.

Obviously, I can't speak from personal experience, but from everything I read, the hardest part of retirement is those first few months adjusting to the no-paycheck life and settling in to the fact that all of your planning and preparation is working as intended. Only then do people exhale and relax and start enjoying themselves.

[LivingAlmostLarge]

For you and me, you are absolutely correct. We are going to make our money from inflation or otherwise. But you and me are likely in the upper tier of incomes and net worth. We are going to make our money from inflation or deflation, because we have the means to do so. When my business expenses go up - supplies, labor, etc., I just have to pass those on to the customers - most of them middle class - with higher prices. I really have no choice, as in a typically 30 day month, 27 of those days, all of the revenue is spoken for by expenses. Those last two to three days are mine if we have managed well. If you take those two or three days away from me due to higher costs, I either go out of business, cut the heck out of labor (which results in poor service), or raise prices. It's really pretty easy math.

This I agree that we are making money either way. But then i'm not sure when does the larger unemployment problem start to hit everyone? When does rent or mortgage deferment hit the market? How will it affect the economy and people?

[corn18]

This I agree that we are making money either way. But then i'm not sure when does the larger unemployment problem start to hit everyone? When does rent or mortgage deferment hit the market? How will it affect the economy and people?

Those have already hit the economy.

[LivingAlmostLarge]

Those have already hit the economy.

I don't think so. We have seen people have more money from not paying rent, mortgage or student loans. We haven't seen what happens when normal payments have to resume i think.