Jan. 12, 2022

Inflation And The Cost Of Living Adjustment.

I remember when I was a college student, back when tuition was a mere fraction of what it is today. I felt that I could live on practically nothing. And it was true. It's fun to be frugal, and I tried to explore all the ways I could save money.

Today, I live next to perhaps the largest Amish Community in the nation. A community that is essentially cashless.

And, of course, there are thousands of people around the nation, who live a non-materialistic lifestyle. A lifestyle that is not based on cash flow.

So how is it that we now have this concept, that everyone needs to be compensated for their “cost of living?”

For nearly 140 years the US Government has been collecting data, on the current cost of living. The most widely followed measure of the change in the cost of living is the Consumer Price Index. Which will be published again this morning.

The CPI is also one of the most closely watched measures of inflation. As the increase in the “consumer price index” directly measures the price increase of everyday goods and services. The things that the average American uses each month. Food, shelter, energy. Those sort of things.

Now I first ran into this question of the “Cost of Living” back in the 1970s. The last time we experienced such pronounced and pernicious inflaton.

It is, after all, during these times of high inflation, that Cost of Living becomes the most important for the average citizen trying to maintain their lifestyle in the face of accelerating price levels.

This is especially true for those living on the various fixed-income programs, such as a pension, social security, or disability insurance. If the cost of living accelerates beyond them it can seriously affect their ability to sustain their standard of living. Perhaps even catastrophically.

In short, inflation, and specifically the rise in the cost of living, can be a direct financial attack on many in the nation. Particularly those who must make due on a fixed income.

So where does this financial storm of inflation come from?

In the words of 20th century Nobel Economist Milton Friedman:

Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

And it is, of course, the government, which is the big spender in this equation. It is the government's proclivity to live beyond its means which creates the environment that we find ourselves in today, with runaway inflation.

As we discussed yesterday, there is a tremendous incentive, on the part of the nation's government to inflate away the future debt payments we now face.

And one of the best measures of just how much inflation has been created in this current economic cycle is the Consumer Price Index.

So, as we've been discussing the big economic news today, will be the latest reading on Inflation. By all accounts, it's likely to hit yet another new high.

Now, ordinarily, this might mean a boost to the Cost of Living Adjustments for millions of Americans.

Unfortunately, Social Security and the others have already made that adjustment for 2022. So it will be nearly a year before the next Cost of Living Adjustment, no matter what today's inflation reading.