Week 9 Day 2: The Grocery Store Does Not Lie

A gallon of milk was $2.78 in 2000. By 2023, it was over $4.00. A dozen eggs went from $0.96 to over $3.00. Gas, rent, healthcare -- everything costs more every year. Inflation is not abstract. You experience it every time you buy groceries.

Here are some real-world inflation examples that make the abstract concrete. The average new car: $21,000 in 2000; $48,000 in 2023. A movie ticket: $5.39 in 2000; $10.78 in 2023. College tuition (public, in-state): $3,500 in 2000; $11,000 in 2023. Healthcare spending per person: $4,878 in 2000; $13,493 in 2022. The items that anchor your life -- food, shelter, transportation, health, education -- have all roughly doubled or tripled in 20 years. Your savings need to at minimum keep pace with this. At 2% in a savings account, they are falling behind. At 7% in equities, they are outpacing inflation by roughly 4% per year -- which means your real wealth (purchasing power) is actually growing.

The items with the highest inflation rates over the past two decades are the ones most essential to quality of life: healthcare (+5.3%/year), education (+4.8%/year), and housing (+4.2%/year in many metro areas). These three categories dominate the budgets of middle-class Americans and retirees, meaning their effective inflation rate exceeds headline CPI. This phenomenon -- where essential costs rise faster than discretionary costs -- is sometimes called 'needs inflation' versus 'wants deflation.' Electronics, clothing, and entertainment have gotten relatively cheaper due to globalization and technology. But you cannot eat a television. For retirement planning specifically, using 4% inflation instead of 3% for healthcare-heavy budgets provides more realistic projections. The Employee Benefit Research Institute estimates that a couple retiring at 65 will need approximately $315,000 just for healthcare costs in retirement -- a number that grows 5-6% annually.