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All of Inflation’s Little PartsPosted by ahc99 on September 7th, 2008

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Graph by New York Times

Previously I had written a post about this but for some reason it disappeared, but I was able to find it’s cache in Google and so I’ll repost it again along with some further insights.

My post was about an Interactive Graph I found in the New York Times about all of the many different parts that make up inflation. It is a graph of an average American consumer’s spending and the affect of inflation on prices from March 2007 to March 2008. It’s really informative because from it I found out that the average consumer spending consists of these components and what the largest part for each category is:

• Housing 42% - Rent
• Transportation 18% - gasoline
• Food and Beverages 15% - Full-service restaurant meals, Fast food
• Education/Communication 6% - college tuition and fees, cellphone service
• Health care 6% - hospital/doctor’s services
• Recreation 6% - cable
• Apparel 4% - women suits and separates
• Miscellaneous 3% - Cigarettes

The only surprising thing in here is Apparel (I thought we spend more on clothes), but the other ones are pretty true. From this I can also determine which parts for each category I should focus more on and try to cut back on in order to make the greatest savings impact.

• Rent - I currently live with my parents in order to save money and to contribute to paying for their mortgage. So that can be considered money well spent. To me that seems better than throwing money away to strangers by paying rent every month.
• Gasoline - Unless I can find a closer job, this won’t be changing anytime soon. Currently I drive 25 miles each way to work, so about 250 miles on a five day week. It would be nice to be able to use other type of transportation such as the metro, biking, etc… With gas prices rising so quickly (it has hit $4/gal where I live!), I am really tempted to switch my car to a Prius (or other hybrid). However, I think I’ll end up driving my car for atleast 4-5 more years since the cost benefits will cancel out due to the cost premiums on the current hybrids. Hopefully after a few more years, there will be more hybrid choices and they’ll be cheaper instead of the premium in prices they go for now.
• Service Restaurant Meals, Fast Food - I don’t eat fast food that often because of how unhealthy it is, but I do let myself go every once in a while, maybe once a month. However, I do eat service restaurant meals with friends a lot. That can end up being pretty costly, so usually now I just pick up a sandwich at work and on the weekends I go with friends to Chinese restaurants. It is crazy how much cheaper Chinese restaurants can be compared to American restaurants. For example, this restaurant in Monterey Park, California charges $8.95 for the Filet Mignon and Grilled Shrimps lunch meal. In addition, that comes with mashed potatoes, gravy, and veggies. The same kind of lunch meal could easily cost at least $16 at an American restaurant. And truthfully, the Chinese restaurant meal tastes pretty good, so why would I pay for the American restaurant? Adding in tax and tips (easily 25% increase in meal cost) just makes the Chinese restaurants look better.
• College Tuition and Fees - I’ve graduated from school…so yeah…doesn’t really apply to me. However, hearing horror stories from my coworkers and family shocks me on how rapidly college costs are rising. I’m just glad that I’m done with all that and have a fixed 3.75% rate on my student loans.
• Cellphone Service - I’m currently with T-Mobile and have the lowest monthly family package along with employee discount so I’m doing pretty good. I know people that spend $100 a month on their own (just includes 1) cellphone package. It has all the bells and whistles (internet access, unlimited text messages, email, >1000 minutes a month, and/or iphone), but I don’t think I need that. I got the minimum for minutes with 700 min/month shared between three people, minimum for text messages costing $5/month, and restricted internet access costing $5/month. I just can’t justify spending $100/month for a cellphone plan. Besides, the people I call are all on the T-Mobile network so its not necessary for me to have a lot of minutes on my plan.
• Hospital/Doctor’s Service - This is one you can’t really cut back on. I pay my monthly health insurance fee and supposedly its the best one of all my employer’s health plans (it definitely is one of the most expensive ones). However, somehow it still costs me $20 to visit the doctor every time. What really irks me is how the doctor just casually checks you out for less than five minutes and tries to write you 2-3 prescriptions then scrams you out of there. I pay $20 a visit, I expect more than five minutes of your time! And quit trying to drug me up! Bah~ The only thing I can do in this area to cut back is always make sure the doctor is writing me generic prescriptions. That can make a difference between $40/prescription and $8/prescription. And to all those people that still don’t know: there is no difference between brand name and generic brand prescriptions.
• Cable - I’m not sure if this is cable TV or cable internet. We don’t have cable TV at home since a lot of shows are available on the web now. So instead we just have cable internet and it is pretty awesome for getting all of the information you need, playing video games, and downloading many different shows. I don’t even see why cable TV is necessary when you have cable internet. With cable internet you can just grab what you want and see it when you want with none of the filler stuff you want to skip over. It’s like TiVo on steroids. In addition, we were able to reduce our monthly rate by $10 just from calling up the cable company and complaining to discontinue the service. So now it’s even more worth it.
• Women Suits and Separates - Hmm…I haven’t spent money on this category in a long time so I don’t know what to tell you.
• Cigarettes - Heh, I don’t and have never ever smoked before in my life so it doesn’t apply. Some of my friends do smoke and yes it is an expensive habit.

Some other interesting things that are noted on the graph include:

• The high price of oil is a factor that has made food prices rise quickly - Higher oil prices means increase in transportation costs of animal feed, raw crops, etc… across the country. In addition it also increases the price of ethanol which then makes corn more expensive to buy and affects all corn related products.
• Cellphones were added to the index in 1997. Because the CPI can be slow to add new goods, which are often cheaper, it may overstate parts of inflation - I’m not quite sure how true this is. Although they are correct that new communication goods come out rapidly and generally decrease in prices in a short period of time (GPS units and computers are a good example), they do not account for the fact that often new products [read: top of the line or hyped up products] such as the iPhone/iTouch are much more expensive than their counterparts. People just a few years ago didn’t pay for cell phones (or at least paid less than $100) but now they rush out and stand in line to get $200 or even $400 dollar cell phones. Truthfully it’s a little crazy to me when people stand in line to pay money but whatever rocks your boat.
• In the CPI, home ownership costs track rent prices more closely than housing prices. This means inflation may have been understated when home prices were rising faster than rents - This is definitely true. When house prices were skyrocketing to double their previous prices and the CPI was still around 4% I could already tell it was not reflecting the true home cost inflation. Hah I guess with recent downward spiral of house prices it should mean the CPI is overstating inflation then.
• Gas is 5.2% percent of spending nationwide, but only 3.8% percent in the New York area - I was actually surprised about how accurate this statistic was. With all the hoopla about rising gas prices and “the gas crisis” I though I was bleeding money cause of gas prices but it is true, gas is only eating about 5.2% of my spending. With a tank of gas costing $50 per refill and me refilling 4 times a month that comes out to $200/month, which is only 5% of a person making $40,000/year.
• As a group, the elderly spend about twice as much of their budget on medical care - Not really surprised about this… they do get sick more often/easier than the younger folk.
• The ratio of spending on women’s clothes to that on men’s clothes is about 2 to 1 - Not surprised about this either. On average, women love to shop a lot more than men and the more window shopping you do, the more likely you will be swiping that credit card.