This chart below shows the price changes of goods and services from 1997 to 2017. The chart is a great way to show that inflation is not a uniform increase in prices, and that varies greatly from sector to sector. Why some prices are rising at twice the rate of general inflation is worth looking into…

Price changes (Jan. 1997 - Dec. 2017)


Inflation is a general, sustained upward movement of prices for goods and services in an economy. (Think overall prices—not the price of a single good.)

Inflation can be the silent killer to your finances because it erodes your purchasing power over time. That’s why it’s important to determine your risk tolerance and have some exposure to stocks so your money has a chance to keep up with inflation. The Federal Reserve inflation target is 2% so don’t expect inflation to go away in the near future.

There are many goods and services with rising prices, as well as those with declining prices. Wages have barely gone above the median inflation measure. It seems that the things people need have become more expensive while things people want to have become cheaper. Interesting to note that the blue lines are subject to free market forces and red lines are subject to regulatory capture by the government (Food and drink is debatable). Some of these price changes have been more drastic than others.

The student debt crisis is well known and in this chart you can see the costs of college tuition and textbooks have risen dramatically. Colleges continue to have record enrollment and limited capacity which allows them to drive up the price and competition. For college prices to decrease, the demand of colleges needs to go down. As long as students continue to value college highly and have loans are easily accessible that price will continue to grow.

Medical Care
You can live without a cellphone, but you can’t live without insulin. On the chart you can see what the prices of those two categories have gone in opposite directions. Market forces don’t work well in this category. Although I am not a health-care expert, I do believe that changes should be made.

Software, TVs, and Cellphone Service
As technology continues to rapidly advance, prices drop and products continue to get better. Robust competition in the technology sector has allowed consumers to price shop which drives prices down. During the next 20 years I wouldn’t be surprised if cellphone services’ prices increase as the industry continues to consolidate and demand for cell service continues to grow.

So what can we conclude from this article? Inflation will come in many different areas and may change during different time periods. There will most likely continue to be inflation during the next 20 years but knowing which categories will change the most will be hard to predict. The chart shows that where there is demand prices will continue to increase until the demand changes. Planning your finances with inflation in mind is crucial. Whether planning your retirement or college savings, it is something you must factor in to your financial plan.

If you want to build a portfolio that fits your risk tolerance, schedule a free meeting with a wealth advisor to discuss your personal situation.

The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual. Inflation chart created by Econ Professor Mark Perry and first posted on the Carpe Diem Blog.