If inflation feels personal,
that’s because it is

Understanding how rising costs are truly impacting you.

Article published: January 01, 2024


Inflation numbers made headlines throughout the year. But if you don’t feel like they reflected your experience, you’re not alone. Because the things we buy are unique, inflation affects everyone differently.

Here’s what’s driving your “personal” inflation rate – and what to expect as we go into 2024.

Inflation has recently trended down

Inflation is normal, and it ebbs and flows. After hitting a three-decade high in 2022, inflation has moderated in 2023 and is now below its 50-year average.

Sources: U.S. Bureau of Labor Statistics, Bloomberg; as of Oct. 31, 2023. Inflation is represented by the Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.

 

But each person’s experience of inflation is unique

Inflation may still feel particularly acute because some of the biggest increases have been in essential categories – and thus impossible to avoid. But while 
most are still seeing price increases, some categories are actually declining. 
Your personal inflation rate depends on which things you buy most.

Year-over-year change, October 2023. Source: U.S. Bureau of Labor Statistics. Consumer Price Index for All Urban Consumers. Retrieved November 20, 2023, from https://www.bls.gov/news.release/cpi.t02.htm

 

What factors impact your personal inflation rate?

Location
Inflation has been highest in the West and the South, primarily driven by bigger increases in housing costs. Recently, the northern Midwest has also seen higher inflation.

Year-over-year change, October 2023. Source: U.S. Bureau of Labor Statistics. Consumer Price Index for All Urban Consumers. Retrieved November 20, 2023, from https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-region.htm

 

Age
Because different age groups spend money on different things, inflation hits them differently. Rent, food, gas and used cars have all had higher-than-average inflation over the past few years, and they make up more of the budgets of younger Americans.

Portion of total spending that goes toward rent, food, gas and used cars

Source: 2022 U.S. Bureau of Labor Statistics Consumer Expenditures Survey. Retrieved November 22, 2023, from https://www.bls.gov/cex/tables/calendar-year/mean-item-share-average-standard-error/reference-person-age-generation-2022.pdf

 

Dealing with inflation

Even “normal” inflation erodes purchasing power over time. At a 2% rate, costs will double every 25 years.

Luckily, rises in income and diversified investment portfolios have outpaced inflation over time.

Employment income
Wages have usually risen faster than inflation and are doing so once again. 
For Americans who are still working, wage growth is a critical inflation offset.

Sources: Federal Reserve Bank of Atlanta, U.S. Bureau of Labor Statistics, Bloomberg; as of Oct. 31, 2023. Inflation represented by the Consumer Price Index for All Urban Consumers: All Items in U.S. City Average. Wages represented by the Atlanta Federal Wage Tracker.

 

Social Security
Social Security income receives a Cost-of-Living Adjustment every year. The increases in 2021 and 2022 were the largest in 40 years; it’s 3.2% for 2024. COLA is based on a different inflation index and over the past 20 years, it’s increased slightly faster than the Consumer Price Index.

66.3%
Cumulative Inflation
2004-2023

71.7%
Cumulative COLAs
2004-2023

 

Sources: U.S. Bureau of Labor Statistics. Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL]. 
FRED, Federal Reserve Bank of St. Louis. Retrieved Nov. 20, 2023, from https://fred.stlouisfed.org/graph/?g=8dGq; Social Security Administration. Retrieved Nov. 20, 2023, from https://www.ssa.gov/oact/cola/colaseries.html. Data through Oct. 2023.

 

Investments
Inflation is just one risk you need to account for when it comes to your portfolio. 
But note that of the most popular options for protecting against inflation, a diversified portfolio has been consistently successful, outpacing commodities, 
gold or other commonly cited inflation hedges.

Average annual gains since 1980

Sources: Bloomberg, FHFA, LBMA, Morningstar Direct. Figures as of Oct. 31, 2023, except housing prices, which are reported quarterly and are as of June 30, 2023. Benchmarks: For large-cap stocks, the IA SBBI US Large Stock Total Return Index; for bonds, the Bloomberg US Aggregate Bond Index; for cash, the IA SBBI US 1-Year Treasury; for residential real estate, the FHFA House Price Index; for commodities, the S&P GSCI; for gold, the LBMA Gold Price. "60/40 balanced portfolio" consists of 45% U.S. large-cap stocks/15% international stocks/40% U.S. bonds. Inflation is represented by IA SBBI US Inflation.

 

In a macro landscape, focus on your personal economy

Inflation is cyclical. As it continues to moderate and interest rates come back down, we expect a return to normalcy for stock and bond returns. You can hear more about our expectations going forward in our perspectives on your personal economy video.

Macroeconomic trends affect each of us, so they do matter. But remember that like inflation itself, the tools you have to offset it and the strategies you can use to control it are personal. Your planner is here to help you understand your personal inflation rate, place it in the context of your overall situation, and determine whether it could impact your goals and plans. In the end, that’s what matters most.



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