The average American is spending $400–$500 a month more for goods and services, this year versus last year.

Inflation is the highest it has been in 40 years.  And contrary to what you may see on the news, it has very little to do with the President.  

What is inflation anyway?

Simple.

Goods and services cost more to produce, more to assemble, more to transport, more to market, more to store, and more to sell to you than they used to.

Everything is costing more ... or conversely, our money is just worth less.

•   Fuel: 20-50% increase
•   Used cars: 15-30% increase
•   Food: 10-30% increase
•   Housing: 5-10% increase

Why?

Our appetite to buy things, post-COVID, is 20–30% higher than PRE-COVID. Yes, once most of the country got vaccinated or done being locked down for not being vaccinated, we went on a buying spree at significantly higher levels than before COVID was ever a thing.  Kind of like a PTSD binge

And thanks to trillions in stimulus money a lot of people had a few extra bucks to spend.  So is the stimulus money the cause?  Hardly.  Covid killed the economy.  Companies shut down.  Jobs were lost.  Millions were laid off.  The government stepped in to ease the pain.  Was that the right thing to do?  I guess it depends on your perspective and how much pain you were in.  And it depends on how you administer the funds.  Kimmy and I revived $4,000 personally and $200,000 for payroll for one of our companies.  We didn’t need any of it.  But what about the millions of americans that lost everything?   

Since demand was so low during COVID, the supply chain dried up and companies went out of business (or at least laid off their staff). And we all know how the staff felt about going back to work post-COVID. Yawn.

Companies had to spend a lot more money to restaff and ramp up production. It costs a lot more to prime a dry pump than to keep it pumping.   

Payroll and the cost to hire staff, from customer service to manufacturing to truck drivers, have increased.     

There’s a new attitude about work, where employees demand higher wages and remote options. Every time you demand higher wages, you add to the inflation equation. 

It is a simple supply and demand issue. The demand in 2022 for everything is red hot. The supply chain (dry pump) cannot keep up without raising prices because everyone is raising the price of everything along the way.

A Closer Look:

Shipping

Every piece of the journey costs more today, beginning with the COVID-related port shutdowns in Shanghai, then the limited U.S. west coast port shutdowns, the shortage of U.S. truck drivers, and the cost of fuel. Many companies are paying 300% premiums just to get their shipping containers on a ship.

Used Cars

The price of used cars skyrocketed in 2020 due to the shortage of semiconductor chips, which slowed down the production of new cars. Since the public could not get new cars, used cars started going to the highest bidder. In August 2021, I paid $38,000 for a 2015 Ram 1500 truck with 70,000 miles, easily $8,000 over market value from a year earlier.

Food

Staffing, fuel, shipping, and maybe even immigration restrictions have all contributed to food increases.  Climate change also contributes.  The San Juaquin Valley in California is the most productive farming region in the world yet it is in the middle of a 10-year super drought.  Everything from tomatoes to alfalfa hay to lettuce has doubled in price due to the lack of water.

Housing

Something very strange happened in 2020. People of means started buying property in rural states like Texas, Idaho, Montana, Wyoming, etc., and they drove up prices to an insane level. 

In my hometown of Coeur d’ Alene, Idaho, a home I sold in 2019 for $850,000 sold for $1,400,000 in 2021. Another I sold in 2017 for $1M sold for $3M.   

Ask any realtor … if your property was for sale in the right markets, it was a bidding war. Why did this happen? People of means decided they would pay anything to live in a state that did not have aggressive COVID restrictions. The price of freedom was steep. 

And now to slow down inflation, the Federal Reserve has raised interest rates. A 30-year fixed mortgage is now 6%, up from 3%, which will increase your payment at least 50%, which of course reduces how much home a person can buy. But to put it in perspective, I bought a home in 1981 and my first mortgage rate was 15%. 15%!

Fuel

Why is it so much more expensive? The price of oil a year ago was as low as $65 a barrel. Today it is $120. Why? Because production is down.  

During 2020 especially, and to a smaller degree in 2021, the demand for oil (i.e. gasoline, diesel, and jet fuel) plummeted. No one was driving or flying anywhere. Oil companies went out of business. Oil wells were permanently capped. Oil companies laid off workers, many of whom moved into different careers. 

So why, now that we need it, are the oil companies not producing like crazy? Good question ... and here is the answer: profits and the share value of oil companies stocks.

Here is a quote from Forbes:

“Investors have demanded that producers maintain capital discipline and grow volumes modestly. Returns have taken priority over growth. Up until recently, a producer planning to significantly grow production volumes would likely have been punished by investors. However, that sentiment may be changing with oil prices where they are and the potential need to replace Russian barrels on the global market.”

Do you own shares in any oil companies? Does your 401k have any oil companies in its portfolio? If so, you are complicit in the price at the pump.

From an article on Insider:

“Several of the world's largest oil companies reported first-quarter earnings in recent weeks, giving investors new detail as to how sky-high gas prices are bolstering firms' bottom lines. Performance, in a word, was stellar. ExxonMobil reported a net profit of $5.5 billion, more than doubling its earnings from the year-ago period. Shell notched its strongest quarterly profit ever, and Chevron posted its best earnings quarter in nearly a decade.”

Russia has very little to do with it…

And it is not just the oil companies. Most companies are raising prices like crazy AND THEN SOME. And the "and then some" is lining corporate America’s pockets. We often think of corporate America as “those greedy guys and gals”. 

But guess who owns these companies? We do. If you have a 401k or a stock portfolio, notice how you salivate at the stock prices going up. What causes the stock prices to go up? Higher profits. We are literally the victims of our own appetites.

After-tax corporate profits stood at 8.1% of the economy at the beginning of 2020, but have since shot up to as high as 11.8% of the GDP. In an economy the size of the U.S., that equals an increase of more than $700 billion in profits per year. These higher corporate profits have been the cause of over 50 percent of recent price increases.

The media is complicit in ignorance.

They just love to interview the uninformed at the pump.

Notice how everyone interviewed expresses the view of a “victim”.

“Nothing we can do about it.”

“It’s crazy.”

“How can they do this to us?”

“We are going broke.”

“What is the President going to do about it?”

Unfortunately, ignorant people also vote. And they tend to vote for the person who promises to lower inflation, over the person who had nothing to do with it.

I trust this little investigation has shed some light on inflation. It took me 30 minutes on Google to get educated.

Now, perhaps, we can ascend from being ignorant victims and figure out how to be victors.

5 Ways to Beat Inflation at Its Own Game

1. Invest in assets that inflate.

If inflation is 8.5%, invest in assets that are growing in value annually over 8.5%. Real estate, oil stocks, hotels, airlines, etc. Inflation says check. You say checkmate.

2. Look at your profession and what influences your wages.

Are you in an inflated sector? If you work for an oil company, you are likely to get wage increases. Or, if what your company sells gets inflated, you are likely to keep up. If you are in the wrong profession, consider a transition.

3. Reduce your discretionary spending.

You may have to buy gasoline, but you do not have to buy Starbucks. You do not need to dine out. $100 in reduced spending is $100 earned TAX FREE. It is like earning $130–$150.

4. Do a full income and expense review monthly.

Not a budget, just a review. Awareness is 50% of the solution. When you see what you spend (waste) money on, you may be motivated to change. If you do not see it, you can’t change it.

5. Earn more income from a side business.

Just being in business can save you $250–$500 a month in taxes. Any business. Buy from eBay and sell on Amazon. Consult. Take your full-time profession and sell it on Upwork or Fiverr. And if you choose a side business, selling a product or service that keeps pace with inflation, you get the trifecta: more income, reduced taxes, and an income that grows with inflation.

This is how you can be the victor and leave ignorance, whining and victim hood behind. And maybe it will influence how you vote.

If you want to know more about wealth building in today’s economy, hit me up at RB@RichardBrooke.com.

P.S. My blogs are, for me, a conversation. I rant for a bit and then … if so inspired, you respond. Your comments close the loop of conversation. They let me know I was heard. They let me know I contributed something … or not. I encourage you to close the loop … or open a new one and say something.