Inflation Nation?

The price of a mid-life crisis just went up.

Mazda is releasing a 25th-anniversary edition of its Miata MX-5. The price: $32 thousand. Admittedly, the special-edition roadster is a far cry from the bare-bones model they brought out in 1989. It has leather seats, a hand-painted dash, and a power-retractable hard-top. Also, the car comes with a special-edition Swiss watch. But still, $32 thousand is a lot more than the initial sticker price of $14 thousand when the model debuted.

Or maybe not. The standard-issue Miata goes for about $24 thousand. Over 25 years, that’s a 2.1% per year increase—less than the average 2.6% inflation rate over the same period. Sure, if you want the special Tourneau watch to go along with the special car, you’ll have to pay up. But in inflation-adjusted terms, the sporty two-seater is cheaper now than it was in the late ‘80s.

But “real” dollars seem to be something that economists dreamed up. Most of us earn and spend nominal dollars. Even the Fed’s benign target of 2% inflation can eat away at our savings over a long enough time. That $14 thousand expense now costs 70% more. That seems pretty real to me.

The price of everything rises over time. Low inflation is a lubricant that keeps our economic machinery running smoothly. But people need to plan for this. With retirement lasting longer, a little inflation can still take a big bite.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2014-05-07T09:53:54+00:00 May 7th, 2014|Global Market Update|0 Comments

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