Inflation Takes Front Seat

I needed a new car and if you haven’t shopped for one lately let me just say, good luck. After a couple of weeks, I found myself wondering if I was living in cold war Russia. Each salesperson said some form of “You want a new car? Yes, we can get one in three months. You must take whatever features and color it has and pay whatever price it is at the time.”

They did have plenty of used cars available but prepare for a price shock. When I finally found a suitable car, it was a slightly used vehicle that happened to have the original window sticker in the glove box. I asked why the current used price was thousands of dollars higher than the new sticker price. The salesman’s answer was, “Do you need a car or don’t you?”

Inflation is a nasty thing. When operating in full force it can eat away at your finances faster than taxes. In essence it is the worst kind of tax, hitting hardest those who can least afford it. Middle class Americans are paying a heavy price, and most recognize it is much higher than the 6.2% the government claims. The only inflation numbers that matter are the ones you pay personally.

Gasoline, healthcare, food, clothing, and toilet paper (if you can find any) are all tracking significantly higher than the official rate. Supply shortages are part of it but not to be overlooked is massive government spending. Printing new money dilutes the current supply, driving up prices. Another overlooked source is marketplace competition from the government itself. Years ago, the owner of a large paving company taught me that when he receives a contract from the government, he is required to pay his employees what is known as the “prevailing wage.” At the time this was more than double the private sector wage.

With the passage of the very expensive infrastructure bill, contractors on private projects are going to be competing for employees who have the option to work on government contracts at a significantly higher wage. One financial outcome of this scenario will be rising costs of construction across all sectors. If you think houses cost a lot today, wait until contractors are competing with over a trillion dollars to be spent on new public projects.

There are only two options for dealing with inflation. Keep up, or watch your buying power diminish. Fortunately for my friend, the government was willing to pay more to cover the higher wages, but for private contractors the price squeeze gets passed on to the customer.

Planning for retirement will always face many risks, but I believe the greatest risk today is inflation. You can’t stop it and you can’t get around it, so the best solution is to invest to stay ahead of it. Own assets and companies that have the flexibility to raise prices along with inflation. Then when you find yourself needing a new car, you will have your own inflated dollars to pay for it with.