LLOYD: Hiddenflation? Rising costs take toll on consumers

As anyone who has made a run to the grocery store or filled up their gas tank lately knows all too well, prices for many commodities are rising. It seems as if every day in the news we are hearing about how the cost of everything from food to gas is going up, and our wallets feel a little bit lighter as a result.

It’s hard not to wonder what is behind this price creep. Is this inflation? What is causing it, what does it mean for consumers and how will it impact the average family?

It is important to understand what factors are at play and how companies are responding to rising costs; but it is even more important to consider how this will affect us — and how average consumers can best protect their bottom lines. Because whether or not this gradual increase in pricing meets the technical definition of inflation, the impact on your bank account is comparable. This feels like inflation, and families and individuals should think very carefully about implementing both short- and long-term financial strategies to ensure that “hiddenflation” does not take an undue toll on their financial future.

Hidden higher costs

The unmistakable trend these days seems to be that everything is costing more. Large companies are having issues today with higher material costs on everything from food to raw materials, and basics like corn, sugar, oil, wheat, cotton, steel and coffee have all been subject to recent increases. With companies like Kellogg’s and Whirlpool raising prices and Ford Motor Company reporting that it shelled out an additional $1 billion last year in higher material costs, the question is: where is that money going to come from?

The money has to come from somewhere, and unfortunately, the odds are that it will more likely than be your pocket; a significant percentage of higher costs inevitably gets passed along to consumers.

Impact on consumers

From a macroeconomic standpoint, this trend toward higher costs is important, but a more immediate and pressing concern for most of us is not “What does this mean for our national economy?” but “What does this mean for me?”

Unfortunately, because cost increases can be gradual, it isn’t always immediately obvious how much of an impact rising costs are having on your personal bottom line. People who have not significantly changed their habits or lifestyle and don’t feel as if they have increased their expenses may suddenly discover that whether or not they feel like they are spending much more money, they are left with less money at the end of the month. At a time when so many of us are living on a tight budget or a relatively fixed income, our dollars not going as far as they used to is a potential problem — something has to give. The fact that credit card use is up and debt levels are starting to rise again, and that even a recent income boost thanks to a 2 percent decrease in Social Security payroll taxes for 2011 — with estimated savings of up to $1,000 annually for a family earning $50,000 a year — has not been enough to offset higher costs across the board are both red flags. Consumers will need to do more.

Strategies that

work for you

The bottom line is that while things look better overall economically, this hidden impact on individual and family budgets could lead to trouble down the road. You may or may not need to rebudget and adjust your priorities, but one thing you cannot afford to do is ignore the issue.

The single best way to manage your money is to keep track of your money: determine where your money is actually going. The first step is to record when, where, what and how much you spend. No expense is too small to track; if you spend a penny, write it down. From this data, determine your own trends on expenses like groceries and gas over time. For example, a family of four may see the biggest budgetary impact on food prices due to the cereal they typically eat for breakfast, whereas a single person who commutes to work may see more of an impact on their fuel budget due to rising gas prices. Once you have a better idea of how rising prices impact you, you can adjust accordingly. No matter what changes you make, always continue to meet your savings goals for the future.

Be cautious with how you use credit. More people are using credit cards again because they feel like the recession is turning around and things are moving in the right direction, but coupled with rising costs an overreliance on credit can set the stage for trouble down the road.

Rising costs are not likely to be the kind of thing that will affect our country — or your family — overnight. It is a gradual progression. But if these trends continue, down the road your dollar is effectively going to be worth less. Money saved for the future is not going to go as far, even if it may look like same amount on paper. It is a steady rise that can catch up with you, and the key is to act now to make sure that doesn’t happen.

Mark Lloyd is the founder of The Lloyd Group Inc., which serves the distinctive financial needs of those nearing retirement and those already retired. He hosts a weekly radio show called “Focus On Retirement” that can be heard in Gainesville on 103.7-FM WXKT at 9:30 a.m. Saturdays and at 7:30 a.m. Sundays. His website is www.thelloydgroupinc.com.