Why is plywood so expensive?
Home Depot is always a fun trip for a dad, but lately some of the joy has been taken away when I look at the prices. Inflation is alive and well, and I felt it when trying to buy lumber this weekend.
Of course, being a financial planner, I made my kids walk through Home Depot with me as I checked the price of other goods, and asked the manager questions about the change in prices, when they occurred, and did they expect it to continue? Kids weren’t thrilled, but not a bad way to spend an hour on a Saturday if you ask me!
Vocabulary test
So, why do new TVs cost nearly 80% less than they did a decade ago but the price of coffee and lumber have increased exponentially?
Inflation is the rate of change in prices over time, and sometimes those prices increase, and sometimes they decrease. Pricing tends to decrease on technology, and new and better technology is developed making the old products more and more obsolete.
Remember how much a flat screen TV used to cost? Here is a 75-inch tv for under $1,000.
Inflation that is persistently too high that isn’t offset by equally rising wages can decimate a family’s budget, but inflation that is persistently to low shows there is capacity in the economy and room to expand jobs further. Both are not good for extended periods of time.
What’s on the horizon?
This is the million-dollar question, and I wish I had a definitive answer that was rooted in certainty, but if I had that I promise I would share that knowledge so we could all be rich and sitting on a beach somewhere.
For my entire lifetime we have been told inflation is coming, but other than a spike in the 90’s where we almost hit 5% inflation momentarily there has not been any meaningful inflation. Unless you look at the staples, we all need for life. Food. Energy. Healthcare.
Oddly enough, those are the three items removed from the inflation calculation that we hear so widely spoken of by the media.
Inflation never went anywhere
Inflation has always been a factor, but gets widely ignored because the media tells us it has been so low for so long. Many planners use a low inflation rate so that the predictions of success for your plan look higher. Don’t fall for it. If you are in your 20’s, 30’s or 40’s, assume 4% inflation. Forever. This might be high, but so what it’s better to have too much money than too little. If you are 50 or above, assume 5% inflation. Have your healthcare costs gone up or down? My guess is up, so overestimating inflation will serve you well as time goes on.
Short Term
In the short term expect growth to explode as well as short term inflation. We have a tremendous amount of pent-up demand, especially for services such as eating out, travelling, and an overall return to normalcy coming out of the Covid-19 pandemic. The consensus is supply will increase to meet demand, but anytime demand outstrips supply expect to see price increases.
We also had supply chain disruptions and mismanagement across a host of goods during the pandemic, and now. We have seen it in the semiconductor space, and impacting car companies having to decrease production because of a lack of components. Jam a 200,000-ton cargo ship in the Suez Canal and we have the makings for a short-term spike in inflation.
So What?
So how does this impact all of you?
- Inflation has always been here, look at the goods you use most to see your personal inflation rate.
- Expect a short term spike in inflation
Stock market calendar this week:
Monday April 12th:
Federal Budget @ 2PM
Wednesday April 14th:
Jerome Powell speaks @ 12:00PM
Thursday April 15th:
Initial and continuing Jobless Claims @ 8:30AM
Most anticipated earnings for this week
