Friday, November 19, 2010

Health Care Costs Climbing -- like everything else

Just this past week I was on a visit to some family a few hours away and I was pleased at how efficient the trip was. The cost of the fuel to get there was not overly expensive and good planning kept the costs down to something reasonable. Due to space constraints, I opted to get a hotel room for the night but this was planned for in advance. I use the same chain each time to accumulate reward points.

However, about half way through the weekend, I noticed that I was getting a cold and felt like I had a sore throat. Cut to a trip to the pharmacy to get a package of cold medicine. Even the store brand, which was on sale, still cost about nine dollars. The costs of these things really are increasing. That is the very reason why I find comments that there is no inflation to be dubious at best.

Statistics from the Dept. of Labor when it comes to the Consumer Price Index (CPI) tell a more accurate story than just waving-of-hands types of comments. The CPI shows, in short that there are many increases in common goods that most people buy regularly.

Furthermore, despite the CPI values, there are some reports that indicate the FED may even be targetting an inflation rate of 4-6% for a couple of years. Regardless, there is strong concern that the QE2 move of the Fed printing more money (600 Billion$ in this last round) might cause the USD to lose some of its standing as a reserve currency.

1 comment:

traineeinvestor said...

CPI is a basket of goods and services. Even if you believe that CPI is truely representative of what the average consumer spends their money on (and a lot of people don't), it is unlikely that changes in CPI will accurately reflect the consumption of any individual consumer.

Health care, education and housing related expenses like property taxes have consistently risen faster than CPI. If these make up a meaningful portion of your annual expenses, then you would expect your personal rate of inflation to be higher than CPI. This has obvious and material implications for retirement planning.