There’s no inflation, right?
That’s what statistics would have us believe. But look at the cost of the goods you buy. My wife brought home a case of sparkling water the other day. The quantity is now eight cans, compared to the previous 12. The price did decrease $1, but the product count went down by a third. The traditional methods of measurement don’t seem to pick up on that real inflation.
The Consumer Price Index, a widely quoted measure of inflation, tracks the change in prices of goods and services over time. Idaho uses the CPI-U index, which covers a range of goods and services for urban consumers. The U.S. city average is up 2.2 percent since April 2016. Even at 2.25 percent inflation, consumer prices in Idaho have increased two-and-a-half-fold since the mid-1980s.
The fact is, Idaho’s cities are growing, and the cost of living in the Treasure Valley is rising. Just like that sparkling water, it’s easy to think nothing much has changed.
The Statesman reported on May 25 that home values in Ada County were up 8.1 percent, surpassing the prerecession peak in 2008. Median residential assessed value is $223,100 compared with $211,000 a year ago. That’s on top of 8 percent in 2016, which we call compounding, and describes increases on previous increases.
Although many of the excess behaviors and financial engineering from the 2007 credit bubble are gone, the law of supply and demand remains. It does not prevent someone from overpaying for an asset or the possibility that the asset will decline in value. We’ve learned real estate values can — and do — decline. Careful planning, combined with inflation-friendly investing, will provide the best defense to meet the rising cost of living in Boise.
The summer of 2007 suggested runaway inflation, with record prices for stocks, commodities and real estate, yet all of that masked one of the greatest deflationary events since the Great Depression.
Don’t always believe the “official” inflation statistics. Look at the receipt in your grocery bag.
Mark Daly is a partner in the Perpetua Group in Boise. (208) 333-1433. This column appears in the June 21-July 18, 2017, edition of the Idaho Statesman’s Business Insider magazine. Click here for the Statesman’s e-edition, which includes Business Insider (subscription required).