An interesting question arose in response to the CPI report today.
I commented BLS Reports Tame Inflation as Medical Costs Soar Out of Sight
A reader is looking for someone whose cost of living matches the reported CPI.
“One day I hope to turn on cable news and meet Mr. hypothetical person whose cost of living mirrors the CPI.“
Those who cost of living won’t come close to matching the CPI.
Those Not Close
- In college
- Have high interest student debt
- Looking to buy a home
- Pay for own health care insurance
- Have high interest credit card debt
- Live in a high-rent city
If you meet any of those six criteria, and there are likely many others, your cost of living will likely not come close to the purported CPI.
How Closely Do You Match the Purported CPI?
A reader is looking for the hypothetical person whose cost of living matches the CPI.
Chose the response closest if more than onehttps://t.co/gPXYi6tpt0
— Mike “Mish” Shedlock (@MishGEA) February 13, 2020
Curiously, we likely come close.
Mike “Mish” Shedlock
Had to laugh at, LIVE IN A HIGH RENT CITY….
They all are now, even places like North Platte Nebraska have unaffordable rents by the traditional standards of how much income you should pay for rent. I am buying a house, close first week of April, in Florida, it has more than doubled since last sold in 2012. But, I feel I have no choice since my 2013/14 rent was $725 for a place that is now $1,300 and it is a 40 year old hovel. I turn on the hot water at the kitchen tap, then go do something like use the bathroom or go out to the garage for a couple puffs on a ciggy. By the time I return the water is about getting hot.
I do drive a 7 year old BMW though. But, auto insurance for that car when new in 2013 was $635 per year, now right about $1,200 and when I was in Las Vegas before returning here it was $2,400. At first you might think “well that is just a few bucks shy of double,” but you would be wrong. Because that was when the car was new and cost $57,500, now the car is 7 years old and blue book’s at about $13,000, and I had better coverage then. So I am paying double, but that premium is BUYING a lot less. By the way, still clean record but 7 years older, so much for it going down when you hit 60.
And shock of all shocks, I had to provide a home owner’s insurance quote for the house I am buying, I lived in Tallahassee back in 1997-2001 and I had a comparable house, the insurance was $355 per year. Now, the best quote I could get was $1,575 and I had quotes over $3,400. That is more than the property tax on the house. Most people will opt for the lower rate, but I have to tell you that if anything goes wrong, with the coverages and deductibles, it is a one way ticket to BK. Or at least a heavy hit to any savings accounts. $5k for claims except hurricane, that is 5% of the value of the house, and by that they mean the replacement cost which is set at $367k. So, $18, 350 if there is a hurricane. Meaning if there is a hurricane you better pray the house is destroyed. And it does not cover sinkholes at all. That is separate coverage and can be $2-4 thousand per year, also with massive deductibles.
What good does it do to have a mortgage interest rate of 3.785% if the house price has doubled and insurance is up like 1,000%, on top of said higher property taxes?
The good news is I am a 100% disabled vet (Hmmm that’s good news?) so exempt from ad valorum property tax in Florida. And because I have a VA mortgage also do not pay mortgage insurance, those two items save me $430 per month. I will only pay P&I starting January of 2021. Will have to pay tax the remaining months of 2020, you have to be a resident on the first day of the year to qualify for the exemption.
But for sheer ridiculousness I will say that the same house I am paying $257k for there would be at least $650k here in southern Oregon. And if it were in the Portland metro, well I have seen lesser places selling for over a million up there.
The down side of the vet status is that it is a “fixed income” dependent upon federal COLA’s to match inflation. And for 15 years I have kept meticulous records, my cost of living, which should bear at least some resemblance to the CPI has been at least 4 or 5 times what the government claims. I estimate that my costs have risen by near 55% in the last ten years while my raises = 13.2% in a decade. So my purchasing power has dropped by about 40% since the depths of the GFC. Really easy to do when rents double and the cost of housing is not even calculated in the CPI.
The CPI should be 6 percent. I pay for garbage pickup annually. It went up 6 percent. I pay car insurance annually. It went up 6 percent and the car is one year older. I pay property tax annually. It went up 15 percent because my house value went up. Medicare took my entire Social Security increase. I am afraid to buy a new vehicle. The CPI and the cost of living have nothing to do with each other.
I buy my own insurance and am preparing to buy a home soon. Also live in a higher rent area. CPI is like interest on my bank account, not even worth noticing.
Sorry, but the average person does NOT own their property free and clear – they have a mountain of debt because they’ve bought a criminally over-priced home from someone who is cashing out or trading up.
Owned a home (Chandler, AZ) outright until I got divorced and gave it to my ex. Decided to take SS but only Medicare ‘A’ which is free (so no health insurance).
Bought a house for 120k in Norman OK (added tornado shelter for $2700). Food seems fresher and cheaper here. Local Walmart sells US Prime steaks. Gas is under $2 at the Dino (Sinclair).
Spend about $6k a year on nutritional supplements (which are dropping in price so I keep taking more).
I’ll be taking classes at the local community college once I get residency status. About $400 per class.
‘Disaster’ hits in 3 years when I take IRA RMDs. I’ll have to buy a more expensive house and spend even more on supplements. Maybe I’ll find a wife and have more children/tax breaks.
Never really think about CPI anymore. Pay everything with a plastic but without carrying a monthly balance.
Not even close, the FED is using a distorted, less than honest model.
In the early 1980’s, Food and fuel costs were removed from the CPI calculations.
The true value of owned homes was reduced by fifty Percent.
Are we crazy to believe inflation is only two percent without considering the two things we use most?
We are getting ripped off because the rippers are not included in the inflation model.
I give one simple example, I was for a very long time, paying $1.00 for a MacDonalds hamburger. About one month ago they raised the hamburger to $1.19.
That is damn close to a twenty percent increase. Food prices are not tracked and they are are abusing their loyal customer base because they can.
It is not honest to calculate inflation at 2 percent, when the system cherry picks the CPI calculators.
It’s time to fight TRUTH DECAY.
The worse thing is, these dupes believe their own b.s. as their cites the official inflation in their public utterances. Pretty scary.
I’m 4 out of 6 for not close. Could even argue 5 out of 6.
We come close. But the sub-category, “Health Insurance,” which over the last several months has been up over 20% y/y is way off. We spend almost 8% of total expenses on health insurance – much higher than the low percentage of total in the CPI index.
I am in the same bucket as Mish. No debt, paid for home, Medicare and with in Florida taxes and utilities are not a problem- for now. My problem is income. I get 4% from my long held shares in Dominion Energy ( a gas and electric utility based in Virginia) but the 3.1% I was getting from Genworth ( GE’s insurance arm) expired and CD’s are only paying 1.5%.
I do pity those still in the labor force though. I used to have to buy clothes, lots of gasoline , lunch etc and that adds up. Being retired I drive about 5,000 miles per year, no wardrobe expenses so insurance and home maintence expenses are the only big ticket items I cannot control.
I guess you can see where this all headed though — people cannot afford to retire on the benefits they thought were coming to them, which means work longer or retire on a lot less. This is what policymakers just don’t get.
We do about the same thing. Earn 60k and save about half.
We don’t feel deprived but we also prefer eating at home. I eat out like 3-4x a year, all cars are paid for with cash, and I fix stuff myself.
Damn Boomers!
Yep, but don’t worry because CPI is only 2% so you’re doin great!
My home insurance jumped by 20% y-o-y, after somewhat lower increases in the past years. As told by insurance agent, the re-insurers hiked their rates so it’s across the board. I have other examples.
The CPI is about as b.s. as China’s 6% growth target.
Home insurance would be in the risk mitigation category. The CPI doesn’t have that category, so would that be part of housing costs. Would car insurance fall under transportation cost. Maybe Owner’s Equivalent Rent wipes it out… who knows?
Precisely my point; they remove items from the basket that don’t fit into the target 2% manipulated CPI.
Shouldn’t you include what we are comparing ourselves to? There isn’t anything in the article to compare ourselves to price wise except the percent increase graph, which needs a $$$ or % component, not a percentage component for medical care alone.
Based on your other article, I am well below all figures for the CPI, except education, and that’s because we homeshool. This is including health care, and I do not get any employer or government sponsored help with it. I pay all of it and still stay below the CPI levels.
I earn 60k a year and save half of it. Still have a mortgage too that I’ll be paying off in 3 months.
So I guess I don’t match, I’m well below it.
And it’s only a medical CPI adjustment, that’s it. Wrong graph perhaps?
Can you show more of your math?
Still trying to wrap my head around saving half your income despite having a mortgage. Do you pay as you go for doctor? No health insurance?
My wife is a teacher and I get health insurance thru school system. Just this week superintendent asked for ~ 8% increase in next year’s budget … due in part to a 31% increase in health premiums.
Get a house in flyover country and your mortgage will be less than $500/month
Sure, here’s my basic budget for my family of five…two adults and three children, all under 10.
Mortgage-322/month. Bought a 1900 SF house for 91k with a 61k mortgage. Near Raleigh, NC.
Health Insurance-450/month. It’s a Christian sharing group. It has a 500 deductible for the entire family and covers everything except wellness visits. We count as cash pay customers and typically get a 90% discount on everything. I also run marathons along with my wife and eat healthy. Because of that, we literally never need to use medical care. Our monthly premiums are basically our entire medical costs.
Food-350/month. I buy massive quantities of on sale food and store it. Cuts the cost in half to buy food.
Clothes-We do have to buy the kids clothes…they outgrow their clothes. About 100 a month.
Vacations-free. We buy 5 plane tickets to exotic places every year for free and stay at a hotel for 8-9 days every year for free. We get tons of sign up bonuses and use those to purchase stuff for free. Been doing it for years.
Car expenses-about 250 a month. This includes all gasoline and insurance. I do not include purchase costs because it’s less than 20 a month since I buy a used car and drive it for 15 years. Maintenance is not much since I do all the repairs myself and often can repair the parts themselves (youtube is a wonderful help)
That’s a small example of my budget. I earn 60k as a family income, save 30k a year and will likely be financially independent by age 48-49 (42 now).
At least that’s the plan.
I also run a financial blog for low income people.
thanks