My freshman son at IU has to take trips home or to Indianapolis three times in the next month or so for family obligations, so after he came home last weekend, I suggested he get an IU parking pass and take “his” car back to school until at least spring break. He was more than happy to do so.
In my heart I knew I would never see my beloved 2009 Acura in the condition it left again. The car had been pampered by me for 10 years, always kept in the garage and managed to survive a high school male driver in remarkably good shape. Since my son left for school, I’ve been driving it occasionally, especially when I go to the airport. After a detail job and some light maintenance, the car and I had become reacquainted since August, and now it was leaving. Probably forever.
Now I am going to admit something that is repressed deep in my soul. Last summer I got a brand-new pickup truck with a super fun huge motor. Before buying the truck, I did all my research, read the reviews, watched the YouTube videos, and then pulled the trigger on a decision that was probably predestined and excessive. I had seen the videos by truck guys saying if you can’t handle the horrendous gas mileage of this literal super truck, then just stay on the sidelines. Surely, I could handle the gas mileage, I’m a truck guy, always have been. I know the game. Give me the truck.
But then gas went over $3.00 a gallon. I started driving the Acura a bit more. Then gas went over $3.30 a gallon, and the truck started staying in the garage for most of some weeks. Then winter arrived and gas went over $3.50 a gallon. I wanted to drive the truck in the weather, but to emotionally deal with the gas mileage I began using the motor so gingerly it felt like driving a three-legged mule. I couldn’t handle the gas mileage. Oh, the shame.
So, deep in my mind I thought, once that Acura goes to IU, maybe I’ll buy an older daily driving car. Something fun, like a smaller older convertible, or a Jeep. Yeah, a Jeep. Jeep’s are cool. So, a couple weeks ago I started “pulsing the market,” looking around and seeing what these things are selling for.
“Shocking” is the best way to describe the fruits of my research. I had a price range in mind when I started the process, but to get to my price range, I would need to buy a Jeep that was over 20 years old. At this point there will be no Jeep.
Do we see a trend here (besides questionable vehicle decisions, judgers)? Prices. Prices on everything going through the roof. Gas and used Jeeps for sure, but I can also cite other recent observations in the areas of hotel rooms, chicken wings, coffee, lunches out, lumber and home repairs. I’m sure each of you could easily add to my list. According to the Labor Department, the two most closely watched measures of price inflation, PPI and CPI, rose at annual rates of 9.7% and 7.5% respectively in January (source: Bloomberg).
For my entire career going back to 1993, inflation has run at about 2.5%, or in other words, hardly worth planning for. To find inflation at current levels we have to back to the late '70s and early '80s. I wasn’t economically aware at that time, but I do remember the stories of gas lines and grocery prices from my parents and grandparents. I received most of my education in economics in the decade following this period, and even then I’m not sure the causes of the rapid inflation of the early '80s was completely understood. It certainly hadn’t made it into undergrad economics textbooks yet.
Maybe the current inflation trends are unique and mostly due to COVID-related disruptions in supply chains and labor forces. Maybe the Federal Reserve has the tools to address these trends effectively without too much pain.
Unfortunately, however, I’m afraid the only true solution to inflation is the word “no.” As in, at this price there will be “no” used Jeep to me, “no” new home for young families, “no” eating lunch out for workers, “no” vacation for families, no, no, no, because it just costs too much. If enough people just start saying "no" to spending, there’s another word for this as well. It’s called recession.
Let’s hope the COVID disruptions correct themselves, let’s hope our consumers are resilient enough to spend even when prices are a bit higher, and let’s hope markets can digest the policy changes needed to address inflation. At some point, however, I believe investors will start forecasting slowing growth related to price inflation, and that time may not be all that far off if something doesn’t give.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at email@example.com. Securities offered through LPL Financial, member FINRA/SIPC.