All right, everyone's talking about inflation. We thought 3% was bad. We thought 5%, 6%, and now we're seeing some numbers that I quite frankly can't even believe. I'm here with the person that not only knows how to spell inflation, which I can't, but knows all the stats behind what's making inflation, what's to come, because I'm pretty sure the White House is not very optimistic even about what we can expect in the future.
Breaking Down Inflation in 2022
You've written tons of books, you're super connected, and you do a ton of research. I appreciate you coming on the show and breaking down the current inflation that we're experiencing in 2022 in mid-April. So, with that, here we go.
Let me see if I can frame this for your audience in a very good way, Caleb. When you look at inflation, it's the sum total of about 15 to 20 different elements: new car prices, used car prices, energy costs, food, airline tickets. So when you look at the calculation of inflation, it's made up of these, let's say for sake of argument, these 30 elements. I don't know specifically, I don't know off the top of my head how many elements there are, but let's say there's 30 for right now.
Current Inflation Rates
When they come up with an 8.5% number, what's just saying, is what they did for last month, March of 2022, that's a big number, largest number in over 40 years. And so there's a group of people that are looking at all the elements that make up inflation and they're saying, well, it's gonna come down because new car prices are up, used car prices are up because people couldn't buy new car prices, fuel costs are up and they think maybe they're gonna go down over time, heating costs for your home, natural gas prices are up, potentially they'll go down. So there's a school of thought for people saying, we've reached a peak.
Different Perspectives on Inflation
There's been some criticism of those people who are saying we've reached a peak. And the reason that they've concluded that is they've said, look, of these 30 elements, I can see a lot of those trend downward. Maybe if they're at their highest levels right now.
There's another school of thought of people saying, well, wait a minute, we've got a war going on in the Ukraine, we've got COVID lockdown in China that's going to impact the supply chain and the manufacture of goods. And you have all these energy initiatives that are coming through where we wanna do a lot of things to improve the environment. So they're saying, we don't see energy going down anytime soon. We don't see supply chain issues being better. And we see all this global uncertainty because of what's going on in the Ukraine. So that group of folks are saying, they're basically concluding, they're very uncertain and they say they see inflation heading higher or staying at this level for a while.
Middle Ground on Inflation
Recently Caleb, in my reading and the conversations I've had, there is a middle ground of folks that are saying, we're probably gonna be in for a three and a half to four and a half percent long-term rate of inflation over say the next three to five years. We're not gonna get back down to the 2% that the Federal Reserve was targeting. You hear a lot about that in the financial media, the Fed wants 2%. But a lot of folks are saying maybe somewhere in that three to four and a half percent, maybe our intermediate term rate of inflation, but not 8% or 9%.
So I'm just trying to present to you, I think those are the various arguments that are out there and the rationale that people are sharing with respect to inflation.
Understanding Inflation Beyond Money Printing
With that said, is inflation solely tied to the printing of money? Or is there other things that in, you know, when I think of inflation, I think of our money getting devalued and obviously the ripple effect, but you talked about supply chains and all this stuff. So is it possible to have inflation without printing of money? And was it the perfect storm of like we're printing a ton of money and we got supply chain issues and that's a perfect storm for just prices skyrocketing.
Well, the supply chain issues relate back to consumer demand. So everyone's locked up in their house for two years, then all of a sudden we all get out and we want things. We want to eat in restaurants, we want to travel. I mean, an example is travel has now recovered to the point where it exceeds pre-pandemic levels. More folks want to get on a plane, they want to travel, it's gonna become more expensive. I mean, it's just supply and demand. More people want that particular issue.
So I do think that inflation has to do with the printing of money, there's no doubt about it, but you've also had this huge demand, unusual, maybe, and I can't say once in a lifetime, it probably is once in a lifetime, at least demand that people have. They want to travel. They want to buy certain things. So all of a sudden everyone comes in and with that demand happening, then people want to buy the goods, supply chain can't supply that amount, can't keep up with consumer demand, so products are getting higher.
I'll give you a great example, look at automobiles. I mean, around the country, new cars, I was reading an article yesterday that price, over sticker, people are paying anywhere from seven to 30% over sticker to get a new vehicle. Over manufacturer's suggested retail price because they wanted the vehicle. Now, some car companies are saying, please don't do that, others are saying, look, it's supply and demand. So if consumers want to pay it, let them pay it.
Thinking Ahead About Inflation
I think you have a number of different factors, they're demand related, as well as this ongoing printing of money. If you have more dollars chasing fewer goods, the price is gonna go up. And I just hope for so many people, Caleb, I hope that people have gotten the lowest rate on their mortgages, because that keeps their housing costs down. I mean, housing costs are up significantly around the country, rents are up significantly. Some of that has to do with COVID because a lot of landlords could not evict nonpaying tenants during the top periods of the pandemic, and they're trying to catch up now, right? They're trying to get packed where they were. So a lot of unusual factors at play here.
Call to Action: Preparing for Inflation
So I think it's gonna take a while for it all to settle down, but personally, I'm more and more an advocate of this middle ground, of this three and a half to 4% intermediate inflation. And that's kind of how I'm looking at my life and how I plan my expenditures and some of the decisions that I've made. I think that's kind of be what we settle in for over the next, say, five years. As we wrap up this segment, what is the call to action? We're living with inflation. There's some people that think, we haven't even gotten started. I tend to agree with you. I don't think we're gonna go back to the 2%, but I think that it's not gonna stay at the eight, eight and a half. I don't see a world that's sustainable.
So do you see interest rates are gonna probably rise, which is gonna affect certain things like credit cards and mortgages and car loans. And so we're going to potentially see prices go down if you believe that rates can correlate. Like people are buying houses based on their payment, not the price. So that's one thing. What are some other factors that you see that like, in someone that's taking time to watch this or listen to this, what can they do today or this month to make sure that they're not overreacting but being prepared for whatever's to come?
Yeah, I think you carefully have to look at spending and make decisions about what's essential for your life, what you may wanna pass on. You should maybe make decisions about, maybe I'm gonna put off the trip that I was gonna take this year. I'll put it off to a different period of time. I think having an understanding of your spending, where your dollars are going and what the impact is of inflation on those dollars. I'll give you just a quick example. Average American household has 2.8 cars. 2.8 cars. Gas is going up, insurance is going up and so on. Could you live with 1.8? I'm saying to you, could you maybe cut a car? Because one less car is about $5,000 a year. And so there are decisions I think people are gonna have to make based on their individual circumstances. But I think this gets back to more intentionally managing their money. They're gonna have to do that during this period of time because the thing about inflation, and I think we've talked about this in a prior episode, it's the silent killer. It's like the silent tax. And if you don't pay attention to it, it can really seep into your cash flow and really have a negative impact on what goes on.
My name's Caleb Williams. This is the BetterWealth channel. We make videos on money, business, inflation, and other money concepts to help you live more intentionally. Harry, thank you so much for coming on and sharing your expertise. We'll put your contact info down below where you can get his books, where you can check out his podcast and all the exciting things he's doing.
Inflation staying, we don't know how high, but make sure that you're being intentional and make sure that you can look ahead and say, okay, what are some of the things that are gonna happen as a result of inflation and how do we take advantage of that and actually benefit from that financially?
Harry, thank you so much. Oh, you're quite welcome, Caleb. Thanks.
