The delayed inflation report came out today and, in my opinion, it had bad news for everyone. But what caught my eye were two headlines on CNBC (links below).
Inflation at 3 Percent
The first article on CNBC has the inflation breakdown but the headline is that inflation for September came in at 3 percent.
The consumer price index, a key inflation barometer, rose 3% in September from a year earlier, the Bureau of Labor Statistics reported Friday. That’s an increase from 2.9% in August but below economists’ expectations.
Social Security COLA 2.8 Percent
The second article on CNBC has the cost of living adjustments (COLA) for social security recipients.
The Social Security cost-of-living adjustment will be 2.8% in 2026, the Social Security Administration said on Friday.
Social Security retirement benefits will increase by about $56 per month on average starting in January, according to the agency.
Government Math
If inflation is 3 percent and the COLA is 2.8 percent doesn’t this mean people on fixed income are in the hole 0.2 percent?
The insidious nature of inflation is that it erodes purchasing power. If you make $100,000/year and inflation is 3 percent and you receive no raise, then you automatically lost $3000 in spending power for the year. This is terrible but inflation has been running hot for years now which means year after year, the purchasing power of people has been eroding away which translates into the current frustration most people have with the “high” price of groceries, restaurants, utilities, and everything else.
This is why I was never in the “spend less than you earn” camp, preferring “earn more than you spend” because we live in an inflationary monetary system that ensures spending less than you earn leads to a lower quality of life.
For people working, they can demand higher raises or switch jobs to earn higher pay if jobs are available but for everyone else, they are left on their own to survive or lower their standards of living to make ends meet.
Manufactured inflation by central banks has been going on since the creation of the federal reserve but things are getting so bad that I honestly think the whole system will collapse at some point. This is a reason gold and silver have been strongly rallying, people are losing confidence in the system so they revert to traditional stores of money, precious metals.
What To Do?
Inflation benefits asset holders so stocks and real estate will end up doing well, bonds not so much but at least they might help preserve some principle. My personal strategy right now is to use net credit collars to earn returns higher that inflation but preserve as much of my capital as possible.
My real estate also serves as an inflation hedge as I can raise rents or sell the property and bank the capital appreciation.
And lastly, this is a reason why retiring overseas has a significant appeal. I recently spent some time overseas and was blown away at the lower cost of just about everything: healthcare, housing, food, entertainment.