Macro Economic Trends and Risks
Inflation: Micro View of a Macro Issue

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By Milligram46
May 23, 2008

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

Was at the local Home Depot, again, last Saturday. This time, on our freak 90 degree day, the earliest in regional history (after our latest snow less than a month ago) Home Depot was buzzing and people were buying. It was good to see.

I was there for something specific, seven 2 cubic foot bags of red cedar bark mulch. I love the stuff, interlocks so it doesn't wash away in the rain, naturally repels weeds and insects, looks great with the red rich color, and smells good too. Going price last year $3.98 a bag.

Surprise. $4.98 a bag, a 25% inflationary increase in one year.

Speculation. Energy costs, costs a whole heck of a lot more money to shred that bark and transport it to the store, and someone has to pay.

I left with five bags, not seven and spread it a little thinner.

Another thing I recently figured out. I've been keeping maniacal records on my 2005 Pontiac Grand Prix, in large part to the mocking I got in B&MaC on the Fool for being so stupid to buy an American vehicle. I'm happy to report to the naysayers I'm almost 2X past the point when they said my transmission would fall on the ground (36K miles) and I'm still on the original OEM tires, belts, wiper blades and brakes. Yes Virginia, Detroit actually can build a fun to drive, fuel efficient five passenger car.

A big part of my motivation for getting rid of my Chevy Avalanche was what I perceived as spiraling fuel costs back in 2005. When I bought it in 2001, fuel was around $1.25 a gallon, gasoline costs were largely a non-issue, I got a huge tax break for my business, and it was a practical and pragmatic choice for my line of work.

In 2005 things had changed, dramatically, and at $2.25 a gallon I calculated that I was spending $6,000 a year on GASOLINE alone. So it seemed like a no brainer, get rid of the Avalanche.

Thirty-seven months has gone by since I've done that math.

2002 Chevrolet Avalanche 800GMT K-Series: 31 gallon tank, 87 octane regular unleaded recommended, typical fill up from "empty" is 28 gallons:

28 X 2.25 = $63.00 = cruising range of about 375 miles city/highway combined or about 13.5 MPG

2005 Pontiac Grand Prix W-Body Generation VII L67: 17 gallon tank, 87 octane regular unleaded recommended, typical fill up from "empty" is 15.5 gallons:

15.5 X 4.00 = $62.00 = cruising range of about 340 miles city/highway combined or about 22 MPG

Now just kind of let that sink in for a moment. I have increased my MPG by 63%, reducing my fuel consumption by a similar factor. In the span of 37 months my 63% reduction has been completely gobbled up by inflation. Just in 37 short months, and the numbers will only get higher.

So now I'm spending close to $4,000 to $4,500 a year on gasoline, in large part because I've greatly reduced my driving, if I was driving the same amount of distance, I'd be right back to $6,000 a year, on a paycheck that has not kept up with uber-inflation since 2005 so even though the money I spend buys me "more" in inflation adjusted dollars, I'm making less using the same math.

Now for me, the pain becomes decisions like I'm eating at home more, and bringing lunch to work, relatively minor adjustments. For others these same math equations are more devastating, and I was equally lucky to have equity in my old Avalanche, gobs of it, and credit capable of getting me a car loan on very favorable terms (0.9%) along with employee pricing (although I am not an employee of, a family member of an employee of, or affiliated in anyway with General Motors). For those on the lower rungs of the ladder, driving a 10 year old Explorer, F-150, or Toyota T-100, the math isn't going to work out for them. I'm also lucky to work for an employer that lets me telecommute two days a week, further cutting my driving; many Americans don't have these options.

But when I do the math, it just makes me go, "ouch," and I can't even begin to say I understand the impact on others.

Just another micro view of a very macro issue.