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 convenience store for a drink. I bought an Arizona Tea, half lemonade, half tea. It was rewarding for my taste and it quenched my thirst. I decided to take a photo of the Arizona tea box. I posted the photo on Facebook with the caption: “Sitting here enjoying the one thing inflation hasn’t touched: Arizona iced tea, still $0.99.

The post elicited some reactions and comments. One person said, “Make your own tea and lemonade. I jokingly replied, “The prices of tea bags and lemons have also gone up.” Another person added to my comment, “Don’t forget the price of sugar.” Two days later, someone 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 photo had two cans of Arizona iced tea. One marked with the price of $0.99. The other marked with the price of $1.29. The caption read, “It’s officially time to start worrying!” This post got more reactions and comments than my original post. One person said: “I just want to know what we blame him for, the blocking of shipments, the Russian-Ukrainian war, the COVID, the CPU chips? Why is everything going up? Another person said, “Damon, it’s your fault. The moment you mentioned the only thing inflation didn’t hit was Arizona Tea, they raised the price.

Turns out it wasn’t my fault. In fact, the price of Arizona tea remains at $0.99 in the United States. The image of two cans of Arizona tea that has gone viral is actually of Arizona tea in Canada. The box priced at $0.99 is several years old. The price of $1.29 is the actual cost of tea in Canada, adjusted for the US exchange rate. My original point remains the same. Arizona Tea may be the one thing inflation hasn’t touched.

Everyone sees and feels the impact of higher prices at the gas pump. People posting photos of the cost of filling the gas tank are trending on social media. Over the past month, there have been a host of memes on social media poking fun at high gas prices. A recent meme I posted said, “Where can I request ‘fuel’ stamps.” Not only are gas prices higher, but it feels like we’re getting fewer miles per gallon. Although I always fill up my tank when I buy gas, it seems that I buy more gas, more often.

After going to the grocery store, my wife told me that she basically bought the same items she buys every week at the grocery store, but the total cost was $125 more. We do the grocery shopping every week. If our total cost has gone up, $125 per week, that’s $500 more per month for the groceries and household items we spend.

For the person who asked the question, “Why is everything going up? ” The answer is INFLATION. For the rest of this article, I will attempt to explain inflation and its impact on 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 to foster stability and growth within the economy. The problem arises when prices rise too high or too fast. Inflation occurs as a result of an imbalance between supply and demand. There are two main drivers of inflation: cost inflation and demand inflation.

Cost inflation: Prices increase when the cost of making a product or providing a service increases. Increased costs are passed on to the consumer by increasing these prices and services. Example: I was at a Chinese restaurant the other day. They had a sign that said: Due to the increase in the price of chicken, all meals that include chicken have increased

Demand pull inflation: The demand for goods and services increases but the supply remains the same. Example of this would be the current real estate market. There are more buyers in the markets than houses for sale. The end result: Real estate prices are skyrocketing and many people are paying above market value for various properties.

Since the start of COVID-19, we have experienced just about everything imaginable that affects supply and demand, which ultimately impacts prices. We have seen companies shut down production completely, which is impacting supply. We have encountered problems with importing various products and goods into our country which are needed to produce other products and goods. The computer chip comes to mind. The computer chip reduced the ability to manufacture cars, which reduced the supply of cars. The demand for cars was still the same, which led to higher prices for new and used cars. We’ve had an influx of money into our economy through 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 and high unemployment to supply chain issues and the Russian-Ukrainian war, product production and service providers have been unable to consistently meet demand.

The end result is inflation. The Consumer Price Index recently reported inflation at 8.6%. This is the highest inflation rate since 1981. The average inflation rate has been 3.8% over the past 60 years.

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

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

  • All items: 8.6%
  • Food: 10.1%
  • Food at home: 11.9%
  • Out-of-home food: 7.4%
  • Gasoline: 48%
  • Rent: 5.2%
  • Air travel: 37%
  • New vehicles: 12.6%
  • Used vehicles: 16.1%
  • Electricity: 12%
  • Natural gas (ducted): 30.2%

If you’re feeling poorer than usual these days, you’re not alone. Inflation has raised prices on virtually everything. Rising prices have reduced purchasing power. We pay more for less. Employee salaries have not kept pace with inflation. The average cost of goods and services increased by 8.6%. The average wage increase is up 3.4%. Long story short. We have less discretionary income. Things feel tighter than normal.

Solution: Increase income: Secondary work or part-time work. Reduce expenses and non-essential expenses. Manage your hard-earned money better. This too should pass.

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

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