Inflation: When does your $8 sandwich cost $25?

Inflation Sandwich

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Inflation Sandwich 〰️

Of course we can not be exact, but let’s use some rough math to get us close to the answer.

(Please play along as we try to gain perspective with respect to very complex macro conditions)

For those that want the answer immediately(using ~9.5% inflation at a constant):

~12.5yrs

Okay, now let’s get scary. How about if we simply double the price at $16: 

~6.5yrs

Yes. By 2029 if inflation were to remain at its current postulated level; lunch gets expensive. Yes, I’m roughly adding ~1% than what the media garners as the inflation rate. A few reasons why: inflation(based on CPI) inherently can’t be perfectly calculated with real world context as the government can use subjectivity(choosing time frames/data sources) whilst providing it. Also, within the structured context of how much a sandwich might cost, we should be using numbers related to sandwiches; the cost of food and the supply chains attached(gas included). 

Overall food prices climbed 8.8% over the past 12 months, with grocery prices up 10%. Shelter costs have risen by 5% during the same period- according to the Bureau of Labor Statistics (BLS). The biggest culprit is of course the commodity that makes every product find a shelf: Gasoline.

In the 1970's, the average American paid $0.36 for a gallon of gas. That soared to $1.19 a gallon by 1980, a 230% markup in the span of a decade. Inflation-adjusted to today’s prices, gas went from $1.72 a gallon in 1970 to $2.95 a gallon in 1980, a 72% rise.

Today, gas costs an average of $4.21 a gallon, up from a recent low of $1.94 a gallon in 2020, according to the U.S. Energy Administration Office. That’s a 117% jump in the span of just two years.

All of this is putting further pressure on the bottom lines of average Americans. Welcome to the beginning of De-Globalization. You might be asking…

Will high inflation stick around?

You already know what got us here: Over-stimulus and Gas supply shock(Russia’s invasion of Ukraine & sanctions). Both of which have serious ramifications without any timely/obvious solutions. 

The Fed’s best tool to combat inflation is by raising interest rates; which they just did by .50%. They have provided a tentative roadmap that hasn’t exactly bottled volatility amongst traders. This is a story that time will tell. Given the scheduled increases in rates, I feel it is safe to assume that it will take a few years for effect. Do not expect this to simply shoot back to moderate levels as the banking system requires living within these rates to create intended outcomes.

How does one invest in this environment with any certainty? Most investors should be asking themselves how much of a decline in their portfolio they can tolerate; while also being mindful of the effect it will have on current and future income. These are appropriate and timely questions given this new environment of shifting sands under us all. 

Be proactive and seek a customized analysis of your asset allocations that carefully inspect one’s risk/reward potential toward your goals at www.vtwealth.management

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Opinions expressed are those of John Bodnar and not necessarily those of Vermont Wealth Management and International Assets Advisory LLC. All opinions are as of this date and are subject to change without notice.