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URL:  http://boards.fool.com/rkmacdonald-wrote-i-have-done-quite-a-bit-of-12200798.aspx

Subject:  Re: Is inflation that bad??? Date:  3/14/2000  3:42 PM
Author:  jpkiljan Number:  6077 of 748980



rkmacdonald wrote:

I have done quite a bit of thinking on this topic. I call this one's 'Personal Rate of Inflation' or PROF. I think that with a little
research, everyone could calculate this. . . .


I really like this concept and I think it should add some security to ER's. Inflation can be a real killer on bond holders and some other investment instruments but it doesn't have to mean "We're gonna have to start eating catfood, Martha!" to the long retired. I first started thinking about about this when I read YMOYL where Dominguez/Robin start quoting the price of chickens in the 70's and early 90's, Are Our Fears of Inflation Inflated? p. 299

I didn't buy the whole argument, but the points made are certainly valid. For many of the the things that really matter to our personal happiness (food, shelter, clothing, transportation, entertainment, etc) inflation has been a non-event over the decades. Even where it has marched up along with the CPI, the products we are getting are much better (bigger houses, safer and more fuel-efficient cars, better medicines, more TV channels, etc).

International trade and increased productivity for industry and society as a whole have really helped lower the cost of living for all Canadians and Americans. It really is amazing: I just bought six beautiful breakfast cereal bowls (made in China) that will last for a decade for less than the price of a big Mac meal. I think this productivity/trade trend is going to continue for some time.

Moreover, as you suggest, our ability to shift from one product to another should keep our PROF in check for many decades to come. As an example, even though gasoline (and probably fuel oil) costs have recently jumped 50%, my utility bill for gas and electricity (and probably coal prices) have stayed the same. How can you continue to charge a big price for fuel oil when natural gas is so cheap? Other comodity prices (paper, metals) still drag along at historic lows with no signs of a let-up.

Moreover, if demand for natural resources begins to drop in the latter part of the decade--as some demographers now predict (retiring baby boomers)--things should get even better for today's ER's. The only dark clouds on the horizon I can see are the rising cost of health care and a college education. The latter (now rising at about 6% per year), I still can't figure out, but at least the Canadians seem to have the first under control and the Americans will figure it out sooner or later.

"Hold the catfood, Martha. Our Deutsche Telekom local phone bill just went down and there's a pork roast on sale for 49 cents a pound at Safeway."

Best to all ER's,
-- John
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