Why have we stopped questioning inflation?


As I stand here petrol nozzle in hand watching my children’s inheritance evaporate away like the fumes of my tank, I can’t help but wonder what’s changed over the past few years to have made people so accepting of extortionate inflation. I reach for a small bottle of Sprite with the price ‘£1’ splashed all over the label like it’s a multi-buy, like it’s a good deal. It may be a good deal by today’s standards, but it’s by no means a good deal compared to the price 10 years ago. In fact this tiny bottle of fizzy pop is over 40% more expensive than it was then. I’m thinking of the days when a small bottle of fizzy branded pop cost around 69p – I hope my maths is right, it’s quite late – and you could buy a mars bar to accompany your unhealthy sugary drink for around 40p but even that seemed expensive at the time.

What about fuel prices. I remember all too clearly a day when the amount of litres I was getting in my weekly tank fill up, far outweighed the number of pounds I was spending. As I filled up my tank today and glanced at the meter I almost fell over to see the cost of unleaded fuel at 137.9p a litre. According to this great chart I’ve just found, only 10 years ago it was around 70 pence a litre. That’s a rise of almost 100% in under a decade!

So what has changed in people to make us now accept these high prices as being normal, when not that long ago we’d have had fuel tanker strikes or lorry driver strikes if fuel prices went anywhere near the £1 a litre mark?

Our seeming acceptance of higher prices was also mentioned recently on Bloomberg in relation to oil prices. When oil first hit $100 a barrel there was genuine fear that $100 oil had the potential to collapse the economy and financial experts were out in voice to proclaim that fact. We’re are now back above that $100 a barrel oil mark but people don’t seem to be flinching. What’s changed?

Maybe we’re beginning to accept the price rises as inevitable or perhaps many of us are just content with having employment and don’t want to rock the boat when it comes to salary demands. One thing is for sure though, prices have risen drastically over the past 10 years and we don’t seem to be questioning those price increases as much as we used to. When you think about your own circumstances ask yourself ‘Has my salary or income risen by 100%, 80% even 30% over the last 10 years?’ For many this will not be the case, quite a few people have even seen their incomes decline in real terms.

Low interest rates have softened the blow of inflation for some but record low rates can’t last forever or they will only worsen the problem. So in this new overly inflated world in which we all live and have come to accept, my question is this. At what point will the cost of inflation once again become unacceptable to you? At what level will society again begin to question these price rises and consider them to be unacceptable? As someone who has an interest in economics, I’ll be very interested to see those questions answered in the coming years.

It’s Friday so it’s also time for our best of the rest roundup from around the web this week!

Young Adult Money ~ How Cost of Living Impacts Finances and Lifestyle

Canadian Budget Binder ~ A parking lot scam for money gone wrong

Frugal Rules ~ Saying Good-Bye to the Spender and Hello to the Saver

My Own Advisor ~ 3 personal finance lessons learned from Detroit’s bankruptcy

Mom and Dad Money ~ How to Negotiate a Lower Bill

Girl Meets Debt ~ My Free Date Turned Expensive

The Money Principle ~ Focus on money may be ruining your life…

Reach Financial Independence ~ New challenge: Live off online income

Modest Money ~ An In depth review of Credit Sesame  

14 Responses to Why have we stopped questioning inflation?

  1. Matt Becker says:

    Thanks for the shout out! Much appreciated. There are definitely several important areas where costs have increased at crazy rates over the recent past (gas, education, healthcare). I do think that in each case, however, there have and continue to be efforts to fight that. Alternative energy, online education, concierge medical practices. These things may or may not work, but they’re in the works. As an individual, for whatever reason I’m not really a march in the streets type guy, so it’s simply a matter of understanding what’s happening around me and planning for my family as best I can.

    • No problem Matt. Yeah I’m not really a march the streets type of guy either, there are just moments when you look at how much prices have risen in comparison to wages and get a little taken back by it. This post was meant to be more about the fact that we seem to just accept things as normal once we get used to them but actually the rises are profound.

  2. Inflation is the worst tax of them all; it’s a hidden tax, and as you stated in this post, people are becoming accepting of price increases! I know you are from the UK, but you said you are interested in economics so I have to ask: what do you think about the Federal Reserve and how central banking influences inflation?

    • I’m not sure how deep I should go on such a complex subject but here’s my take. I think the Fed is in a real mess because it constantly has to increase the money supply in one way or another in order to sustain the US debt. The whole world seems to be over a barrel because if the dollar goes down then they go down with it but sooner or later something has to give. I think the inflation figures are totally skewed (At least they are here in the UK) and I also feel that low interest rates are the last tool in the box to help people sustain living standards and deleverage until they can come up with a solution. The trouble is it only adds to the problem because low rates and QE are only sustaining a broken system and creating more inflation in the process. Unless we want to see extreme poverty then at some point the inflation has to feed through into wages and again we’ll then have more inflation because of higher labour costs. I don’t think I’ve ever left a comment reply this long so I should probably stop now 🙂

  3. I guess there are some things I don’t miss in the UK although things are no better in Canada. When I moved here in 2007 it was $0.79 a litre and now it’s hoovering around $1.30 a litre which is still far less than what you pay but for me as I get used to earning Canadian money that is very high. Cheers mate.

  4. Prices have risen dramatically but they have been doing this for so long (centuries) that, I suppose, we accept this as inevitable. I remember a Mars bar being something like 17-20 pence in 1990 :). What happens is that pricess go up (inflation) and at some point, after a major crisis (a war, revolution etc.) there is devaluation. This is what happened in Eastern Europe in the 1990s.

    Thanks for mentioning us: great company to keep.

  5. Thanks for the shoutout!

    As for inflation, we’ll never really escape it because most things increase in value over time. Except cars, BAD investment!

    This is why I prefer to invest in dividend paying stocks. You get paid to be an owner of a company and as the prices of goods of a company increase, you get paid to participate in the profits.

    Anyone sitting on a bunch of cash is a long-term loser to inflation, literally 🙂

    Have a great weekend and thanks for the mention once again!

    • No problem mark. I totally agree with you, we’ll never really escape it. I just think that the extreme inflation we’ve seen over the last decade hasn’t filtered through into wages which will inevitably lead to a drop in living standards, especially now that many people have exhausted their lines of consumer credit. If inflation does suddenly feed into wages then we again risk more inflation. At some point though surely wages have catch up? The interesting thing for me is how much inflation people can take before they decide their standard of living has fallen too far and in turn demand either higher wages or lower prices.

  6. I don’t think people have forgotten or care any less about inflation – the problem is that there is almost nothing that an ordinary person can do about it 🙁

    I used to think buying gold was a good bet to hedge against inflation, but with golds plunge now i’m not so sure.

  7. Troy says:

    Actually I wrote a piece on my blog about the lack of inflation a while back. I think it’s that because of the crappy economy, we should be experiencing deflation. But with all this money printing, the deflation is negated, creating zero inflation.

    • Inflation did seem to drop off for a while after the financial crisis as oil prices fell. Slowly though it does feel like inflation is starting to creep into the economy again, at least here in the UK it is. Pre-crises we funded our overly inflated economy with credit and home equity, now it’s surviving on low interest rates or people are cutting back. I just wonder if people could stand another round of inflation without it feeding into wages.

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