Personal Inflation

"Invest in inflation. It's the only thing going up."

- Will Rogers

I have a rather unfortunate habit of saving financial papers beyond their useful life. When it comes to financial documents of any sort, I'm clearly a packrat. It's not that I really want to keep so many papers, but rather that I don't want to take the time to sort out what is not needed and throw it out.

So I continued to save and save and now the four drawer filing cabinet is full, at which point I finally got the message that this has gone on for too long and needs to be confronted. Armed with a good shredder for 90% of the papers and a good scanner for the rest, I've been working through the cabinet for the past few days.

One of the more interesting finds has been a number of old receipts and other papers that show how much the prices of things have increased over a long period of time. This did not really surprise me, but the anecdotal examples from my own past drove the point home very clearly for me. Inflation is real. And very persistent. The current cost of some of the items is pretty amazing compared to the old receipts.

Here are some examples where I could make a fair comparison between an old receipt and the current cost of the exact same item:

• Apartment lease from early 90's. Cost: $705/month. Current cost: $1195/month.
  Annualized inflation rate = 3.35%
• Water bill from late 90's. Rate: $1.40/10K gl. Current rate: $1.55/10K gl.
  Annualized inflation rate = 1.28%
• Sewer bill from late 90's. Rate: $2.70/10K gl. Current rate: $3.66/10K gl.
  Annualized inflation rate = 3.88%
• Receipt for roll of 100 stamps for early 90's. Cost: $29/roll. Current rate: $41/roll.
  Annualized inflation rate = 2.34%
• College tuition bill from early 90's. Cost: $490/credit. Current cost: $1012/credit.
  Annualized inflation rate = 4.64%
• Studio piano receipt from early 90's. Cost: $3290. Current cost: $5900.
  Annualized inflation rate = 3.72%

I have said it before on this blog, but I'll say it again: Because it happens slowly, people tend to underestimate the long term effects of inflation. Even if you are clever and frugal, you will be affected by it. If your income is flat indefinitely, there is only so much substitution one can make until inflation will eventually force a reduction in living standards.

The average annualized inflation rate in the United States over the past century has been about 3.5%, and interestingly enough, a few anecdotal items from the filing cabinet seem to be in the same ballpark.