The Insurance Doctor

Category: inflation

  • Chocolate Prices Are Skyrocketing!

    Chocolate Prices Are Skyrocketing!

    I’m wishing a belated Happy Easter to ALL Financial Wave readers who celebrate!  Did you happen to notice the prices of those Easter bunnies, eggs, and baskets? 

    I consider myself a “Chocoholic!”  Indulging in a piece of chocolate has long been a source of comfort and delight for humans all around the world.  Recently, that pleasure has come with a bitter aftertaste as chocolate prices continue to soar to unprecedented heights.  

    A recent report from the Wall Street Journal noted that the price of cocoa (the main ingredient used to produce chocolate) has risen 123% in the first quarter of 2024!  In fact, since the year 2000, the cocoa price per metric ton has increased from $850 to $9900.

    Most of the world’s cocoa is produced in West Africa.  Ghana and the Ivory Coast account for 2/3rds of the harvested cocoa beans in the world!  Cacau trees can live for up to 100 years; however, they only produce cocoa for their first 20 years of life.

    The primary reasons for the skyrocketing prices of chocolate are:

    1. Climate Change:  Either droughts or heavy rains and too much sun in West Africa have adversely affected production.
    2. Aging Trees: As mentioned, cacao trees only produce cocoa for their first 20 years of life and many of their trees are now older.
    3. Pests and Disease: Pests and diseases like “Frosty Pod” and “Black Pod” continue to ravage the cacao trees further, diminishing harvests and causing a 22-year low in cocoa production supply.
    4. Global Supply Chain Disruptions:  The COVID-19 pandemic caused lockdowns, restrictions, and labor shortages and have all contributed to hindering the transportation and processing of cocoa.

    These issues put small businesses, chocolatiers, and confectionary companies in a difficult position, as they must balance quality with affordability amidst escalating prices.  Many are forced to reconsider recipes, portion sizes and marketing strategies to adapt to the rapidly changing market dynamics.

    Some ways to save money on chocolate include:

    1. Stock up on chocolate AFTER holidays:  Chocolate prices get discounted after holidays, including Valentine’s Day, Easter, and Thanksgiving.
    2. Buy in Bulk:  The larger the bar the less you pay per gram.  Also, chocolate can and will stay fresh longer if kept in Tupperware or your microwave oven, both of which are airtight.
    3. Eat Less: I took a chocolate-eating class a few years ago at Aigner Chocolates (my favorite) given by a health coach.  She explained the proper way to eat chocolate is to take a small piece and let it melt at the top of your mouth instead of chewing it.
    4. Opt for Store Brands: Store-brand chocolates are typically less expensive than big-name brands and often still offer good quality.
    5. Check online:  Look for sales and online coupons as sellers often have lower prices than brick-and-mortar stores.
    6. Kick the Habit:  If all else fails, consider not eating chocolate and substituting something else for your sweet tooth.
  • Inflation rocks the nation!

    Inflation rocks the nation!

    No matter where you go these days, the bank, supermarket, or daycare to pick up the kids the number one topic of conversation in our nation is rampant inflation!  This is also a major problem across the world.

    As of the writing of this article, the G7 leaders are meeting in Bavaria, Germany to discuss “global inflation” and the war in Ukraine.  The G7 leaders are Joseph Biden (USA), Mario Draghi (Italy), Boris Johnson (United Kingdom), Fumio Kishida (Japan), Emmanuel Macron (France), Olaf Scholz (Germany), and Justin Trudeau (Canada).  They represent 7 of the richest economies in the world, which are all being affected by skyrocketing inflation. 

    As per Wikipedia, “Inflation is a general increase in the prices of goods and services in an economy.  When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.”

    My regular “Financial Wave” readers will remember that 2 weeks ago I covered “Inflation and Shrinkflation.” Shrinkflation is charging the same price for a smaller amount of goods.   A good example of this is Gatorade phasing out their 32-ounce bottles replacing them with a taller and thinner 28-ounce bottle while trying to make it look the same size.

    If you are not a business owner, the odds are good that you are on a fixed income or a fixed salary.  This means that the purchasing power of your money is eroding.  This is not a revelation, as you can see the noticeable difference every time you run errands at the supermarket, convenience store or at the gas pump! 

    The 2021 inflation rate was 7%.  The inflation rate for the 2nd quarter of 2022 is expected to be 8.4%!  The question for advisors is, “Is there anything we can do about this?”

    My answer is, yes, we can suggest investing in I-Bonds, also known as Inflation Bonds, backed by the U. S. Government!  The letter I stands for “Inflation Bonds,” which are specifically designed to fight inflation during these times. 

    You might not hear from your advisors about this because there are no commissions or fees to be made from selling I-bonds!

    My Lucky 7 Features and Benefits of I-Bonds:

    1. Definition: I-Bonds are savings bonds that earn interest based on combining a fixed interest rate and an inflation rate.  They are designed to earn a higher rate than the current inflation rate. 
    2. Security:  These bonds are secured by the U.S. government!
    3. Flexible Deposits:  You can deposit between $25 and $10,000 per year into an online treasury bond account.
    4. Online Accounts Only:  I-Bonds are ONLY purchased from the U.S. Treasury by internet online at www.TreasuryDirect.com
    5. Interest Rates Declared Twice Per Year: Every May 1st and November 1st, interest rates are declared, and your I-Bonds earn that declared and guaranteed interest rate for the next 6 months. 
    6. State Income Tax-Free:  I-Bond interest is protected by N.Y. State or your state of residence; hence, I-Bonds are state tax-free!
    7. Matures in 30 Years:  You can keep your money earning strong interest in your I-Bond account up to its maturity rate in 30 years.

    One of the reasons why I know so much about Inflation Bonds is because I purchased a significant amount of I-Bonds myself from the U.S. Treasury direct internet account this April.  This was after they announced the May 1st rates would be 7.11% from May 1st, 2022 to November 1st, 2022.

    A good advisor will ALWAYS look at the pros and cons when evaluating investment alternatives.  If you are looking to keep your I-Bond for over 5 years, there is NO drawback regarding liquidity.

    To explain, I will compare the withdrawal penalties/liquidity of I-Bonds vs. CDs, also known as Certificates of Deposit or Certificates of Disappointment in some circles.

    Year               I-Bonds                                 Bank 7-Year CD

    1                     Zero withdrawal 1-year interest penalty

    2-5                  3 mth interest penalty 1-year interest penalty

    6-7                  100% with no penalty 1-year interest penalty

    As you can see, as far as liquidity is concerned, I-Bonds compare favorably with bank CDs.  In case you were wondering, the current I-Bond interest rate is 9.62% which is guaranteed until the end of October 2022, before the rate changes again this November 1st!

    It is important to strategize with your advisors during these uncertain times of rampant inflation and a choppy stock market.  There are loopholes to being able to contribute more than that $10,000 per year from the treasury.  If you are interested in learning more, feel free to reach out to me at Rob@InsuranceDoctor.us.

  • Inflation & Shrinkflation!

    Inflation & Shrinkflation!

    We just broke an all-time USA record!  Unfortunately, it was a record for the national average for a gallon of gas breaking $5 for the first time ever last Saturday.  The price at the pump was up 30 cents over the last 3 days and increased $2.04/gal from 12 months ago.  According to Opis, a company that tracks gas prices for AAA (the American Association of Automobiles), Monday was the 16th straight day gas prices have increased.  Distillate fuel inventories, which include diesel, are a whopping 24% below our five-year average.

    The Google definition of inflation is: “A general increase in prices and fall in the purchasing value of money over time.” Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages.  A surge in demand for products and services can also cause inflation as consumers are willing to pay more for the same product.  In other words, a sudden imbalance in supply and demand can cause inflation to rise rapidly!

    As you have probably noticed, it is NOT just gas prices, as the prices of many other goods and services are on the rise.  The May 2022 CPI (Consumer Price Index) reports were just released, and it rose 8.6% over May of 2021, a 40-year high.  The CPI measures the cost of goods and services over time. 

    You might be asking yourself, “how did this happen” and “what does this all mean for me?”  Good questions!  This means if you are on a fixed income or salary, your money will not go nearly as far during these times of rampant inflation. 

    How did this happen?  I will give six reasons for the current gas quandary we are in, which I predict will go up another $1 per gallon over the next 30-90 days. 

    The following are 6 reasons for our current gas predicament:

    1. The Russian Invasion of Ukraine:  This sudden invasion with no warning dramatically decreased the amount of oil and gas available due to the NATO’s (North Atlantic Treaty Organization) immediate sanctions on Russian energy exports.
    2. A Shortage of Refineries to Convert Light Crude Oil to Gas, Diesel Fuel and Jet Fuel:  Nobody is talking about the high number of refineries that shut down during Covid-19 in 2020 and 2021.  If you remember, in the beginning of this pandemic, few people were driving; hence, demand shrunk almost overnight, causing many refineries to shut down. 
    3. The Shutdown of the Keystone Pipeline: This was the first major move of the Biden Administration as the Keystone Pipeline was 1-2 years away from completion.  This would have given us more control and significantly more reserves to stockpile for the exact situation we now find ourselves in.  
    4. Releasing Reserves Was a Band-Aid:  In an effort to reduce prices, we released significant reserves, which did not resolve the situation.
    5. Shipping Conglomerates Raised Prices:  When gas and oil demand goes up, so do the prices, and shippers have taken full advantage of the current situation.
    6. Summer Vacation Time:  Many Americans have been couped up for over 2 years and are taking that much-needed vacation or two this summer, despite the high gas prices.  This higher summer demand will push up gas and oil prices (Crude Oil Barrel is now over $120 from $100 a month ago) even further. This is why I am predicting another $1 increase over the summer.  I hope I am wrong!

    The combination of less refining capabilities and increased summer travel have exacerbated this imbalance between oil and gas supply and demand.  This causes major ripple effects.  Consider that as of 2019, the United States trucking industry has been responsible for transporting 70% of ALL goods in the USA.  Higher diesel gas and oil prices mean higher trucking costs, which lead to higher supermarket prices and airfares!

    Companies know that Americans are watching prices closely and have resorted to “sneaky measures” in my opinion, called “Shrinkflation!”  In economics, Shrinkflation is known as the process of items shrinking in size or quality, while their prices remain the same.  It is important to me that my “Financial Wave” column readers stay educated and ahead of the curve reducing your expenses by being smarter than non-readers!

    As per the NY Post, 5 Current Examples of Shrinkflation Include, but are Not Limited to:

    1. Gatorade is phasing out 32-ounce bottles in favor of taller and thinner 28-ounce bottles sold for the same price.
    2. Small Kleenex Boxes now have 60 tissues instead of 65.
    3. Chobani Flips Yogurts have shrunk to 4.5 ounces from 5.3 ounces.
    4. Cottonelle Ultra Clean Care toilet paper is down from 340 sheets to 312 sheets. 
    5. Folgers coffee downsized its 51-ounce container to 43.5 ounces but, still states it makes up to 400 cups.

    My takeaway is that it is important to keep track of trends and try to build a habit of reading and comparing labels and prices both for value and health purposes.  With all smartphones having a calculator, it doesn’t take long to calculate a cost per ounce even while at the supermarket or at home comparing prices to save big $$$.

    Do you have any additional examples of shrinkflation?  Feel free to email me at Rob@InsuranceDoctor.us.

  • 7 Money-Saving Tips at the Gas Pump!

    7 Money-Saving Tips at the Gas Pump!

    Due to a combination of events including Covid-19, the Suez Canal 2021 container ship backlog, and the current Russian invasion of Ukraine, there are gas supply-side issues that are driving up prices.  At one point, the U.S. was producing enough gas domestically to not have to import any gas from overseas. These are some reasons why we are in economic turmoil today! 

    During the past three months, we hit 40-year highs for inflation over a 12-month period.  From February of 2021 through February of 2022 the inflation rate was 7.9%. 

    What does this all mean?  To examine the rise in the annual inflation rate, we must first go back and examine the recent past.  Look at the annual inflation chart since 2017 below:

    Calendar Year                      Annual Inflation rate

    2017                                       2.1%

    2018                                       1.9%

    2019                                       2.3%

    2020                                       1.4%

    2021                                       4.7%

    2022                                       9.0?

    From February 2020 through February 2021, the overall inflation rate has been 7.9%.  Inflation is felt across our economy, starting at the supermarket as food prices have gone up by 8.6%.

    These days, pulling up to the gas pump is somewhat of an adventure and a major topic of conversation.  The cost of gasoline has gone up 38% since last February 2021.  There are significant ripple effects of these gas prices, as over 70% of our goods and services are trucked across the country. 

    Have you recently taken a cab ride from one of the airports?  Drivers from yellow cabs, Uber, and Lyft for the most part, use their own money to gas up their vehicles.  There are not enough vehicle charging stations (yet) available for cabs currently, so they must rely on gas-powered vehicles.  In order to earn a living, they must pass on the majority of their gas price increases to their ridership!

    As of this writing, California has the most expensive gas in the country.  Their average cost is $5.57 per gallon, the only state with an average cost of over $5.  More than one friend of mine texted me a photo of a Shell station in Los Angeles charging $6.99 per gallon of regular gas!  The states with the least expensive gas are Kansas and Oklahoma, both averaging $3.79 a gallon. 

    Unless the “Keystone Pipeline” project gets reawakened, I don’t see this issue subsiding anytime soon.  Windmill power is being developed and many years away, so me must reply on gas.  Gas prices can vary as much as 10-15 cents a gallon even a few blocks or miles away.  The savings add up over time!

    Heed My 7 Tips to Save Money at the Gas Pump:

    1. Wholesale Clubs: Members of wholesale clubs such as Costco, Sam’s Club and Krogers receive member discounts on gas!
    2. Pay with Cash:  There is a saying, “Cash is King!”  You can usually save between 5-10 cents a gallon when you pay in cash.  If you have a big truck or SUV, this adds up quickly.
    3. Loyalty Programs and Gas Cards: Nearly all gas stations have some type of loyalty program.  Most of us are creatures of habit and fill up at the same station or two.  Sign up at the stations you most often frequent or consider changing stations.
    4. Investigate Your Credit Card Rewards: Check to see if your credit card company has any deals on gas purchases, even if only in the short term.
    5. Time it Just Right: According to GasBuddy, the best day to save at the pump is Monday, the day that has the lowest gas prices in most of the country.  Do NOT fill up if you see the gas delivery truck leaving the station!  There are air bubbles that can temporarily negatively affect the gas quality until they have time to settle.
    6. Smart Phone Apps:  Downloading apps, such as GasBuddy, Gas Guru and the AAA mobile app, can be helpful, especially when traveling.  Also consider downloading CityMapper (a fluorescent green icon) which gives you the time it takes to get to your desired location by train, bus, citi bike or walking and it shows the estimated calories you will burn by doing so.
    7. Check the Internet:  Before embarking on a road trip, you can check in advance online where the cheapest gas is.  For example, www.NY1.com/gas is one site you can check in advance of road travel.

    Spring is officially here this Sunday and there will be more cars on the road.  The bottom line is, a little bit of reconnaissance can save lots of $$$$!  Let me know how it goes at Rob@InsuranceDoctor.us.

  • Inflation & Pizza

    Inflation & Pizza

    You will be hearing about inflation frequently during this holiday season.  The current administration forecasted a 2% inflation rate.  The Consumer Price Index numbers were just released, and from October 2020 to October 2021 the inflation rate was 6.2%!  This is the highest increase in the last 30 years!

    My friend Jay (originally from New Jersey) was in town from Maryland this weekend, and his favorite pizza is from New Park, so we had to go last Sunday before heading to Madison Square Garden for the Rangers vs. Devils game.  We were 3rd in line after 2 gentlemen who looked like they were in their late 60’s.  When the first man’s pie order came out, he asked, “how much do I owe you?”  The worker said $27 to the surprise of the man.  I said, “inflation just kicked in right now” and all 3 of us laughed. 

    Since the early 1960s, the price of a regular New York slice has almost matched the price of a subway token.  This was called the “Pizza Principle” or the “Pizza-Subway Connection!” 

    From New Park, I needed gas and paid over $4 per gallon for 91-octane on a credit card.  I have seen gas in Manhattan for $5 per gallon.  As per the Automobile Association of America, the national price of regular gas is currently $3.41 per gallon.  The New York State average is $3.56 per gallon.  The Manhattan average price is $4.33 per gallon. 

    This got me thinking about what has caused this inflation to be running rampant!  Basic economic supply and demand are what triggers inflation.  There are root causes for what is going on right now and we must adjust our budgets to cover these higher costs.

    The reasons include, but are not limited to:

    1. Government Covid Relief Bill: This bill disincentivized some people from returning to work. Now employers are seeking workers and paying higher salaries to hire them.  Increased wages cause inflation.
    2. Supply Chain Shortages and Delays:  The majority of US goods are trucked from coast to coast.  There is a shortage across of 80,000 truckers across America.  Long-haul truckers have gotten a raw deal over the years as working conditions have deteriorated.  According to the U.S. Bureau of Labor, the median trucker salary is only $47,000 per year, and adjusted for inflation, their purchasing power is down 30% from 1970-2020.
    3. Increased Costs of Raw Materials:  A combination of factors including increased gas and transportation costs and food shortages have driven up prices.  Your favorite Queens Pizzerias are paying more for tomatoes, cheese, basil, olive oil and cardboard boxes.  Some of these prices increases have been passed on to the consumer.
    4. Corporate America: When the pandemic first hit in 2020, corporations such as the airlines and automakers, went into survival mode and cancelled semiconductor orders, furloughed workers and slowed down production, which created supply shortages.  As the public had more disposable income, the demand increased faster than the bounce back in supply.  Unfortunately, this is not going away anytime soon.

    In summary, this will really impact Americans this Thanksgiving and Holiday Season.  This is a good time to adjust budgets and control spending, as your dollar will not go as far as it used to. 

  • Why a 2022 Social Security boost may not be enough

    Why a 2022 Social Security boost may not be enough

    The Social Security Act (SSA) was signed into law by then-President Theodore Roosevelt on August 14th, 1935. In addition to several provisions for the general welfare, the new Act created a social insurance program designed to pay retired workers aged 65 or older, a continuing income after retirement. 

     As per SSA.gov taxes were collected for the first time in January of 1937, and the first one-time lump-sum payments were made that same month. What many people did not know at the time is the average life expectancy in 1935 for men and women was 59.9 and 63.9 respectively. Roosevelt must have figured few people would live long enough to collect.

    Social security is indexed for inflation, which is currently running rampant. It is hard to not notice the prices of goods and services have been rising. Comparing September 2020 to September 2021, for example:

    1.   Gas has increased an average of 42%

    2.   Eggs have gone up 35%

    3.   Bacon had a 28% increase

    4.   Used or Pre-Owned cars are up 24%

    5.   Kids shoes up 12%

    6.   Food on average is up 12% and

    7.   Furniture is up 11% over the last 12 months

    inflation CPI cost of living
    The rapid rise of consumer goods outpaces income for many

    When inflation surges like this, older Americans are the ones who are affected the most. Many seniors are on a fixed income and have their money invested conservatively, such as bank accounts and bank CDs (which I call Certificates of Disappointment!) This time of high inflation and super-low interest rates compounds the problem for many senior retirees.

    The good news is that it was just announced that Social Security recipients are slated to receive a 5.9% cost of living adjustment (known as COLA) in 2022! This benefit increase would be the largest in nearly 4 decades. 

    Based on my 7 examples above, the 5.9% increase will still not be sufficient to offset the skyrocketing increase of goods and services. In addition, there is the federal Social Security tax bite of 50% for individuals earning between $25,000 and $34,000 and 85% for single tax filers earning over $34,000 per year.  For joint tax filers, income between $32,000 and $44,000 would pay a 50% tax on your benefits. Couples earning over $44,000, up to 85% of your benefits may be taxable. Certificates of Deposit (CD’s) compound the issue because the taxable interest they earn (even though you don’t withdraw it) counts against your income.

    Other than repositioning assets and investments, older Americans have few options to increase their cash flow to absorb price hikes outside of returning to work or increasing hours of employment should they still be working. 

    See my tips below on options to help you offset inflation eating away at your purse or wallet:

    1.   Consider Credit Unions or Internet Banks: Both credit unions and internet-only banks will usually pay higher interest rates than brick and mortar banks.

    2.   Consider Transferring CDs to Fixed Annuities: Fixed annuities (issued by insurance companies) help in 3 ways. They typically offer higher interest rates than CDs.  The interest is tax-deferred, which lowers Social Security taxes, and most CD’s allow for a 10% per year no-fee withdrawal. If you withdraw (break) CD money before maturity, you lose ALL of the interest accrued. 

    3.   Consider Selling Your Life Insurance Policy if Not Needed: For older Americans, (especially in poor health) a life insurance settlement could make sense. We have been able to help clients obtain 2-5 times their life insurance cash-values (lump sum with usually no tax) by selling their no longer needed life policy, as well as saving them money they were paying in monthly premiums.

    4.   Consider a Reverse Home Mortgage:  Homeowners could be sitting on an inflation hedge by tapping into their home’s value with a reverse mortgage. This is not for everyone. It is wise to consult with a professional. Homeowners with no mortgage balance could set up monthly payments or a line of credit that can be tapped as needed. Those who are currently making mortgage payments would immediately see a boost in monthly cash flow by refinancing into a reverse mortgage; hence, eliminating their required monthly mortgage loan payments. 

    A great mentor of mine used to say, “the situation is the boss.” Each situation is different. There are other options like series I-savings bonds too numerous to mention. The worst possible decision is to DO NOTHING!