Marc Cuniberti: Inflation A to Z
This is the first in our three-part series on inflation.
Inflation causes downward class mobility in almost every income strata except the super-rich. Inflation actually enhances their position very nicely
The majority of people do not comprehend this fact nor do they understand just how inflation does this. In fact, inflation is called the “stealth tax” as its symptoms lull to sleep the very people it damages the most.
Inflation has different official descriptions, but for simplicity sakes let’s just says it is rising prices, a definition most people would give if asked what it is.
Inflation is a general price increase over time in most all things such as food, energy, service and just about everything people spend their money on. Inflation also causes your income to rise. One could safely say the U.S. and indeed most of the planet has seen steadily increasing prices of most everything only interrupted by an occasional fall in certain items (such as gas prices recently) caused by temporary supply gluts or for other reasons, but the general direction over many years is up.
Most have accepted inflation as a fact of life but there have been prolonged periods of time where inflation was nonexistent for decades in just about every country one might look at. Many argue during these times a country is the most prosperous.
Just how inflation does its dirty work yet masks this deed in a feel good sort of way to the people it affects is truly an economic marvel. Inflation feels good as it increases your wages, your house and stock values, and even brings more people into your place of business. It all sounds wonderful doesn’t it? After all, if you make more, sell more and your assets go up in value, what’s not to like?
The economic truth is inflation slowly erodes your net worth, your paycheck (by decreasing what you can buy with it) and most importantly, persistently drops consumers into lower and lower income classes.
It accomplishes this task by adhering to one economic truth. Although everything does go up in price including your income, that one truth is wages always lag behind the general increase of prices in everything else.
That is the one fact that causes this otherwise feel good phenomenon to stealthily destroy all who live within its grasp. It appears you are getting ahead but in actuality the exact opposite is happening.
An example would be to imagine a two percent inflation rate where everything you buy goes up two percent a year. Your house also goes up by that amount as does everything you own and even your business sells two percent more. But because wages (income) lag behind everything else, you are slowly falling behind. True, you do make more, and sell more, (hence the feel good part) but the wage increase does not match the increase in the things you buy.
It’s like running a race where you run five mph (your wages) but your opponent runs 10 (general price levels).
Although you think you’re getting somewhere, the longer you run the race, the further behind you get.
That the Federal Reserve (hence the government) supports such a policy and has stated such in their minutes begs the question: why would they support such a class destroying policy?
We will discuss that and how inflation actually helps the super-rich in our next Money Matters. Stay tuned.
This article expresses the opinions of Marc Cuniberti and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at MKB Financial Services 164 Maple St #1, Auburn, CA 95603 (530) 823-2792. MKB Financial Services and Cambridge are not affiliated.
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