My Silent Battle With Inflation

Posted On December 18, 2021

My mother had a saying when I was growing up and now it’s stuck with me like any good saying does when repeated over and over during one’s formative years.

The saying is this: “Lazy people work twice.”

It doesn’t take much imaginative work to guess that I probably wasn’t working as hard as I should have been as a youth to have been told this over and over again. Usually, household chores were the culprit. A half-ass job sweeping the floor meant I’d have to do it all over again if it wasn’t up to my mother’s standards. It’s always taken a huge effort for me to do things I don’t want to do. Luckily, I was raised to believe that there really is no choice when something has to get done, the only choice is how well it will get done on the first go.

To this day, when faced with a task I’m not enthused about, even as a 38-year-old adult supporting a family, those words cross my mind.

I’d say it’s worked well over the years. Enabling me to stand out enough to raise up through the ranks of a union carpenter to an office position managing the work. Getting it done right the first time around is a fine recipe for success in manual labor. The higher up you move, the less shitty jobs you have to do, and yes, there are some shitty jobs to be done when it comes to building high rises out of concrete.

I’ve done my own twist on this saying in recent years to fit my newfound personal finance nerdiness. Especially since my savings rate has ramped up to about half my take-home pay.

And it’s this: “Lazy people pay more.“ If I want something done for me instead of doing it myself? I’ll pay more. If I don’t do my research ahead of time, I’ll likely end up paying more. I imagine it is impossible to have a high savings rate while being lazy about money.

I’m guilty as charged at times. Nothing against lazy people. I can be deadly lazy at times. My work ethic is entirely forced and not a natural character trait if the job is something I don’t find interesting (hence my pursuit of FIRE).

Owning a high savings rate takes hard work, it’s not easy and diligence is a must. I have a system down to keep my expenses low. The “system” is eerily close to the same method one would use being on a strict diet. I know because a couple of years ago I did a Whole 30 challenge with my wife. The hardest part of that challenge was preparing, well ahead of time, for things to eat that comply with the diet rules. If you get to the hungry part and don’t have ingredients or meals prepped, you’re likely to fail. In case you’re wondering, the Whole 30 Challenge is a strict diet undertaken for 30 days, where sugar, alcohol, grains, legumes, soy, and dairy are not eaten. Pretty much only protein and vegetables are allowed. It sounds easy, but is super tough. Sugar is in everything!

The same rigorous preparation and forethought Whole 30 took, goes for spending money. If you aren’t proactive and prepared for a situation ahead of time, you’ll likely spend more money. For the most part, this system has worked well, but its sharp edges are now being dulled by the monster called inflation. Preparing ahead of time is turning out to not be enough to save me money like it used to. This inflation monster has learned my playbook and it seems I need to become more creative in my money-saving schemes.

Ah, inflation.

The little beast I’ve read so much about and have been told stories about by older folks, like some childhood boogeyman meant to scare me into behaving or else. The beast has shown itself to me and it’s not imaginary. After months of living on the news screen of my phone and television, it came and grabbed my hand holding my credit card in its forceful grip, cracking the delicate bones of my fingers in its vice-like squeeze, then left me reeling in pain and disbelief.

Yes, living in the San Francisco Bay Area and spending workdays in the city of San Francisco, I’m too aware of high prices. So aware, that I naively disregarded the inflation worries as the problems of the less populated American regions, the non-coasts, where things are were cheap. They’re just catching up, I would muse, $4 dollars a gallon for fuel is nothing new.

A few weeks ago inflation came to slap me in the face as I sat in my car ordering two Starbucks coffees with my wife. I thought the dude taking the order had just got my order wrong. So when I pulled up to the window I asked him to repeat the order, then the price. Now granted, I don’t order coffee from Starbucks all that often. When I do buy, it’s usually from a small local business type joint, but this day we were running late.

$8 for two coffees! Shit. And I still went through with the transaction, knowing the inflated price, due to a combo of the state of shock from being told the price of a paper cup and brewed water, and my life and death addiction to caffeine.

As I handed over my credit card to be devoured, I couldn’t help but think if only I’d made some coffee at home. I didn’t prepare ahead of time and so I paid. My motto of “Lazy People Pay More” came back to slap me in the face. I’d been lazy. Too lazy.

The same situation happened to me on a recent trip to the home improvement store to buy a few lightbulbs for some that have gone out around the home. A single lightbulb cost $4.89. Being that I had to buy quite a few, the price ended up being pretty high. Without doing any price research I ended up paying more.

But these moments were like a door opening. On the other side of the threshold stood inflation for only just a moment before it disappeared. The moment was all it needed to scar me. I’ve seen the ghost and the image is burned into my mind. Everywhere I look I now see the tainted prices that inflation might have spoiled.

I question all prices now.

Everything feels more expensive. But is it? Is it just my mind looking for high prices? Looking for an excuse to worry? Are finance articles just subconsciously tainting my thoughts? Am I just a financial hypochondriac self diagnosing? Alas, it’s not just my mind. I am paying more. More for food. More for gas. I meticulously track my spending and keep records of what I spend. So I have some hard data to look back on. This last November was an outlier for sure, counting our vacation. I’ve already spent 10% more on groceries from January 1st to date (2021), compared to the entirety of last year (2020). And I still have a trip or two to the store left for December!

6.8%

Us personal finance nerds are probably well aware that the Bureau of Labor Statistics put out their latest report for November’s Consumer Price Index on December 10th. Headlines are showering us with the nasty little fact that it hasn’t climbed this fast since 1982.

Year over year inflation has given rise to the cost of goods by 6.8% in years time! Most of it food and fuel. If we take away those costs it’s a bump of 4.9%. Still, a hefty slice into my most recent raise at the old W-2 job.

So I haven’t been imagining things in the grocery store. The greedy inflation monster really is back and here to rob all our savings rates and investment returns if we aren’t careful. And this monster apparently isn’t the only thing we should fear (why is it always fear?), the Fed might do something like raise interest rates to induce a self-imposed recession.

We will likely be caught in the tides of this war between the central banks of the world and the rising cost of doing business like helpless civilians in a carpet bombing raid.

1982

So what happened the last time inflation rose this fast?

Back in 1982, the United States was in a recession. A self-induced one and the second of such in two years. From July 1981 to November 1982 the United States was suffering the worst economic downturn since the Great Depression (only our most recent 2009 recession would top this bad boy). Paul Volcker was the head of the federal reserve during this time, nominated in part because of his hawkish stance on inflation. He believed that what the Federal Reserve had been doing in the 1970’s, with their “Stop-Go” policy of trying to fight high unemployment and high inflation was the wrong tact. It wasn’t working.

Mr. Volcker entered office in 1979 when federal fund target rates were at 11.2%. By June 1981 he’d raised rates to hover around 20%. His target was not just interest rates, but the money supply. He ignored calls by congress and pundits to reduce the rate, especially when unemployment rose to higher than 10% during this time. The dollar depreciated. The pressure was intense for him to back down from his bold policy and it did cause economic pain at the time, but he held fast and inflation came down. Inflation hasn’t peaked to this insane level since 1982…till 2021 of course. His victory is known as the Volcker Disinflation and it set the table for two decades of strong growth.

I’m no economist, but I’ve read a bit of history in my short 38 years. I’ve come to believe that history doesn’t repeat itself, but themes do. One key element is our beloved short-term memory for short-termed benefit. It’s easy to believe, as a society, that the large and scary events that occur in our lives are “a first” (they may well be for us as individuals but not society), so we tell ourselves this time is different than the last. This mindset has led to some catastrophic outcomes from the times of ancient Rome to the most recent world wars.

Looking back after several decades from certain events, it’s easy to see patterns and do some amateur Monday night quarterbacking. But it’s almost always impossible to do this in the present moment. If humans could use history as a guide for solving the present’s problems, we’d all be living in some problem-free utopia. And nobody wants that.

Prior to Volcker, Keynesian Economics had been the rule of the road for decades. A lot of borrowing on cheap credit took place to fund the Vietnam War and the Great Society agenda in the years leading up to 1982.

20% interest rates sound incredible to someone born in 1983, like me, and who’s only seen a Fed high rate of 6.5% as a working adult in the early 2000’s.

So to the present moment.

The Fed has acknowledged that it’s raising rates in the near future. Likely 3 hikes next year.

What does history tell us about this? Recessions occur nearly 37-42 months after the start of a rate hike cycle…well, that’s what the headlines are saying. I’m sure it’s true. I’m sure the journalists covering this headline have done their due diligence. But as I’m writing this I’m digging up a ton of articles written in 2015 throwing out these exact same scary headlines!

On December 16th, 2015, nearly 6 years ago to this date, Janet Yellen rose rates from a range of 0%-.25% to .25%-.5%…and everyone was saying the world was going to end. This was the first hike in nearly a decade and the wounds of 2008 were still fresh–hell they’re still fresh in my mind–but we ended up having quite a bullish 6 years since. Till that virus came of course.

So will a rate hike really cause a recession? History says so. But we know recessions occur anyway. Hell, we just had one last year.

What does a rate hike mean for someone who’s on the road to FIRE?

Nothing. Except to ensure I’ve made my coffee at home to avoid the $3 plus cups of joe that Starbucks is dishing out here in the Bay.

Okay, seriously though, there will be some changes that I’ll have to take. Luckily, I’ve locked in my 2.86% fixed mortgage rate. That decision, which cost me quite a bit in fees, is looking better and better as the days pass. If I hadn’t of refinanced, I’d be looking to do that now. I pay my credits cards off monthly, so the worry doesn’t lie with those bad boys.

As for investing. I may make the switch to buying bonds sooner than planned, depending on a myriad of factors–not just inflation; not just interest rates; not just my portfolio value vs allocations. My retirement withdrawal phase has always included a “bond tent” to get me past the critical first 5 years of early retirement. The plan for me was before this inflation thing reared up, was to start funding bonds in 2023–two years before I’m supposed to pull the plug in 2025. That’ll likely still be the case, but I’ll have my eyes on the rates. But if for some reason a recession does occur, and I haven’t lost my job, it will be hard not to keep plowing money into equities for the potential upside of the recovery.

The fundamentals of saving and investing as much as I can, within reason, have helped put me in a strong position to ride out any storm coming from these fear-inducing headlines making the rounds. To worry, as I’m inclined to do, won’t get any of us anywhere. The central banks will do what they want. They’ll go to war with this money-eating monster called inflation, the only hope is that the war will be brief, collateral damage is minimized, and the central banks hold fast, as Volcker did in the early 1980s.

What about you? Are you concerned at all about this inflation? Will you be doing anything differently with interest rates rising?

***Wow. Took a minute to get this post out. Like any routine, once the momentum has stopped its hard to get back at it***