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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Is Inflation Good or Bad? How to think it through.

Is Inflation good or bad? Gas prices are up. We see them every time we drive down the street. On the news, they keep talking about inflation. If you're in retirement or thinking about retirement, it can be scary. Should it be scary? How should we think about this?

John Scherer and Bridget Sullivan Mermel talk about a source of economic analysis they like--Full Stack Economics. (See below for links).

Full Stack Economics does a nice job of breaking down inflation in no-hype language. While inflation concerns seem to be everywhere right now, Full Stack had goes back a bit farther. Some of the data goes back 30 years.

What they show is:

Services have gone up in price.

Goods have not gone up as much. That's stuff.

For instance, TVs have gone down in price by almost 100%.

The cost of manufacturing things—clothing, durable goods, it’s gone down.

Food prices have gone down, although not as much as durable goods.

Housing costs have stayed about the same.

The prices that have gone up significantly: college, health care, and child care.

Bridget bought a TV in 1989 for $500 John bought a $1500 computer, while Bridget bought a $5000 computer in 1990.

The point is--we forget about the things that have gotten cheaper or the prices have stayed the same. Or maybe we have nostalgia for it.

We pay more attention to prices that are going up.

Politicians are talking about it. But, there’s something else going on with you if you’re leaping to—it’s a big problem. Pay attention to it—but you don’t need to panic. How does the price of gas impact your life? For some people, it has a great impact. However, for many more of us, it has little or no impact on our day-to-day budget or life.

If you're in retirement, remember in retirement, your spending is more flexible. Many items that are included in inflation aren’t in play during retirement—you don’t have to pay for college or for child care.

Make rational decisions, break it down into what it means for you.

00:00 Welcome!

00:35 Intro 01:15 Why people are concerned about inflation

01:52 What has gone up in price

03:45 John’s first computer

06:05 Don’t ignore it. Pay attention. Don’t overreact

10:00 Look at the facts

Inflation—articles from Full Stack Economics

Here's Bridget's firm website:

Here's John's firm website:

For advisors around the US:

Thanks for watching and please subscribe!


John: The price of gas has spiked. Inflation is here and it can be kind of scary, but how much concern should we have and how should we think about that? That's going to be our topic on today's episode of Friends Talk Financial Planning. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: I'm Bridget Sullivan Mermel, and I run a fee-only financial planning practice in Chicago, Illinois. John, before we go further, let's remind people to subscribe. That helps us with YouTube and helps more people find what we're doing. So please subscribe.

John: That's right.

Bridget: So, John, let's talk inflation. You found an article from Full Stack Economist, and I felt like it did a nice job of breaking down inflation in non-hype language.

John: Yeah, that's great! And this is one of the things I love about our show, Bridget; it's just having this opportunity to share ideas like these on the things that we think about and talk about behind the scenes. And it's great to be able to share it.

And yeah, that article was If you just spell that out, Inflation rate. It's in the news. We see it at the gas pump. We were talking gas prices before we hit record on this episode. I see it every time I drive to and from the office. It's right in front of you. And you go, “Holy moly, what's going on here?”

And then you read about it in the news. And the article on Full Stack Economics had some interesting points that go back a little farther. Lately the inflation rate has been spiking, and we often think about what's going to happen in the future, but Full Stack Economics went back 30 years with some of the data, and they broke it down into different types of inflation and different things.

And largely it was services that have gone up in price and a lot of goods. We've had a spike recently with the chip shortage and some of those things. But over time, I was really shocked that the price of a television has gone down. It was just a straight line down, almost 100% decrease in price, which sounds crazy, but when you think about what those things costed 30 years ago, it's not.

Bridget: And it’s relative to the whole. So I remember buying a TV in 1990, the first TV I bought, and it cost $500, and I saved up for it. It was a nice TV for the time, but it was $500. The whole category is called durable goods, so something that you can move, especially if it comes from overseas. The price of manufacturing things has just really gone down in the last 30 years, and even back to 1960.

So, the cost of manufacturing things, like clothing and big durable, has gone down, while housing has kind of stayed about the same relative to the whole basket. So food has gone down, not as much as TVs, but it's gone down. And clothing has gone way down. And shelter has kind of stayed about the same, relative to everything. But what's gone up is college, healthcare, and childcare costs. So things that take a one-on-one person to be there with you have gone up.

John: Yeah, that dichotomy is interesting. And as you were telling your story about the $500 TV, I was remembering how we didn't have those great big ones. And it made me think about when I bought my first real computer for home. We had just moved into our house; it was 24 years ago. And anyway, it cost $1,500. It was state of the art.

I remember we got our first disk of AOL, so I could do email at home. And it had like 500 megabytes of memory on it. Now, my cell phone has twice as much, ten times as much memory. And it was just state of the art for $1,500. That scale of things is easy to forget. Geez, you can get that same thing for $50 today, or less than that, maybe.

Bridget: And my cellphone has a camera on it, too. And it's better than any camera I ever had at the time. And I told you before that I took out a $5,000 401K loan in 1990 to buy a computer. And then we ended up calling it k-chunk, k-chunk because that was the noise it made as it was on its way out. So we forget about those things that have actually gotten cheaper or the prices kind of stayed about the same.

And there's a lot more saliency, or we notice a lot more with the prices that are going up, especially if they're flashed in front of us and politicians are talking about it and making it into some sort of big crisis. I don't want to minimize it. It can be a crisis for somebody who really drives a lot or really needs to cut back on other things because of gas prices.

But for a lot of people, again, it's not that big of a part of their entire basket. And so, taking the very recent spiking gas prices and saying, “Okay, everything is going to just be more expensive.” There's something else going on there in your brain if that's where you're prone to go.

John: Yeah, that's interesting. I really appreciate the idea that it's not that we should ignore it and say, “Oh, it's no big deal, don't worry about it.” No, we need to pay attention to it. But this idea of having some perspective. When you think about taking a loan from your 401K to buy a computer—a major purchase—you go, “Wait a minute. Okay, some of those durable goods have gotten cheaper, even with the recent spike and things. Yeah, that's a lot less expensive.”

And so, as we think about, how do we process having that frame of reference? And as you know, one of mine is, even with the price of gas spiking here recently, we're back at the prices at the pump that we had 14 years ago in 2008, before the credit crisis. And so again, this is concerning, especially for folks that are driving. I was talking to a friend who drives for a living. This is a big deal for him. We got to think about these things, like what to do if it continues and how to pay attention to that.

At the same time, another way to look at it is, geez, for the last 14 years, the price of gas has been cheaper than it was back before my kids were born. With those sorts of things, you can go, “Okay. Yeah. We need to be concerned, but we also need to have some perspective on it.” And I think that's really useful as we think about it. At the end of the day, of course, it's all about what do we do about these things. How can we take action?

And having some perspective helps to maintain balance and think, “Oh, yeah. Okay, we've got this.” And I love that you mention reptile brain, that is the bad memories about inflation and what it can do when you think back on mortgage rates in the double digits in the 70s. At the same time, let's have some balance with it. And I know for me, anyway, that's really helpful as I think about what to do going forward from here.

Bridget: Yeah. And the other thing is that I think people might not be thinking through what it's like when you're retired. Let's say you have a million dollars and that goes up by 8%. Okay. So that's going to be $80,000. And at the same time, you spend $100,000 a year and that goes up by 8%. Okay. So, your million dollars is now $1,080,000 and your $100,000 is now $108,000. So, you still have $72,000 more in your investment portfolio. So, the net effect is positive. I think the people equate the two. Our brains aren't wired to get to that conclusion efficiently if we're not mathematicians.

John: The other thing about retirement is that—and I know that we both have believed this over the years—you’re more flexible in retirement than you and I are today. When I got two kids and we've got certain things that we need to do. And sort of metaphorically, if the price of beef goes up, then I'll buy more chicken or if this kind of vacation is more expensive, I'll take that a different one for a while.

And as you said before, one of the key factors in the CPI calculation is cost of college and cost of housing—housing and college. And of course, that doesn't affect most people in retirement. Not nearly to the extent anyway, that it does that it would affect me, so to speak. So it's just a different perspective.

One of the things we have are these fears, and it's sort of incongruent at times. I've got this reaction to inflation and some of the memory, and yet if you look back some of the facts, the fears don’t quite measure up. Just looking at the facts can be really helpful to go, “Oh, yeah” and break that cycle of thinking.

Bridget: Right. The feelings associated with remembering how much I used to spend to fill my tank of my Torino and how much I spend now feels worse than the memory of the computer that I bought with a 401K loan, even though it's kind of the same thing. That feeling is worse because I'm more of an I-don't-like-inflation person than you are. You think, “Whatever,” which, I think, is a good attitude to have, but my reptile brain gets triggered a little bit by a feeling of weird regret or something. Although I have no control over gas prices, I regret that they are higher? I don’t know.

John: Right. Well, that might be a good place to sort of circle back and wrap things up. And this idea of taking note, recognizing the feelings and where things are is key. Yes, you should be concerned about inflation and be aware of it. At the same time, however, maybe getting some distance and looking at some of those facts and just getting some perspective can help you make more rational decisions going forward. That's a really big takeaway for me. What else did you have for our viewers, Bridget?

Bridget: I would say break it down into what it means for you. Is it going to impact me? When I look at all these things, where is inflation really affecting me? What is it affecting? How does that come back to me and how is that going to affect my future? I think that is an important way to think about it.

John: That's great. Well, super! With that, I'll just remind everybody that both Bridget and I are members of the Alliance of Comprehensive Planners. And if you like what you hear on our show and would like to find an adviser in your area, check out

Bridget: And don't forget to subscribe. Thanks, John.

John: Thanks, Bridget.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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