Is this good news?
Well, in some sense, yes. But, it doesn't actually tell the situation, does it? Without lying, they are still able to cover the truth. There is so much embedded into these couple lines, it is worth a bit of a post.
The year-on-year increase in the price of food hit 16.3 percent in March, a record-high level, but the rate has gradually started to fall since then.
While the above numbers are on food only, at the start of 2022, the inflation rate was already climbing in Finland (globally) quite heavily.
But if we look at Food inflation only, it is much higher.
But you can see that at the end of 2021 and prior to Russia invading Ukraine, it was already starting to move upward in a clearer track. Come January 2022, it exploded and if you remember, the US was blaming this on the Russian invasion, despite those numbers bein calculated prior. What caused the inflation was massive amounts of debt being taken for Covid planning. The largest and fastest shift of wealth from poor to rich ever.
So, 16% increase YoY between March 2022 and 23 is significant. This means that a grocery shop of €100 in 2022 is now €116 in 2023. But, inflation hadn't stopped in March, had it? To really get a picture of what is happening, we have to think about it in longer terms. But, the peak of the inflation on food was around the end of 2022 and start of 2023, which put it at 17%, for instance:
Start 2021 shop: €100
Start 2022 shop: €104
Start 2023 shop: €122
However, it is now September 2023, so we have to look at the "lowering inflation" in regard to the YoY, which was already high and over 14%.
August 2021 shop: €100
August 2022 shop: €114
August 2023 shop: €123
Which is only two thirds of the way through the year. So, if we are somewhere around 7%
Start 2024 shop: €130
That means that there has been 30% worth of food inflation in the space of three years.
So, lets have a look at what this might mean for a typical family.
Numbers are hard here, so I am going to use some from an article from few years ago that said that the average US household spent 9.7% of their income on food, split 5% at home and 4.7% away.
Last year, households in the lowest income quintile spent an average of $4,109 on food, representing 35.1 percent of income, according to the USDA. Households in the highest income quintile spent an average of $13,348 on food, representing 8.2 percent of income.
This means that the lowest income 25% spent a third of their income on food, but it was a third of their income. The wealthiest 25% spent 3 times as much, but it was less than a tenth of their overall income.
This is a better way to visualize it.
So, lets say a family household in the middle 50% will spend on average 20% of their total income on food. In Finland, this will equate to about €1000 a month, or 12,000 a year making their pooled income 60,000 a year (I am making the numbers easy to calculate, not accurate).
Start 2021 shop: €12,000
Start 2022 shop: €12,480
Start 2023 shop: €14,600
Start 2024 shop: €15,600
However, for the vast majority of Finns, the wages have been relatively stagnant, which means that this illustrative family is earning around about the same 60,000 they were earning in 2021. This means that as a percentage of their income, they are now spending 26% on food, not 20%. That 6% difference is a full three weeks of their total household income, going just on food.
This is of course in combination with all of the other essentials that are increasing rapidly, like energy and gasoline. Then of course, all the non-food purchases increasing too, as well as entertainment increases and the like.
My point is, that while it might be good that the inflation rate is falling, it needs to be considered as a rate over time, which means that it is still increasing prices. It is only when the inflation rate is a negative that prices fall. This means that unless there is at least an equivalent increase in income, it is going to have negative affects on financial lifestyle. A falling interest rate for a stagnant income doesn't ease the pain, it just makes it get worse at a slower rate. Even if inflation went to zero, those in economic pain, would still be suffering at the same amount.
These types of numbers are presented in a way to make us feel some sense of relief, when in actual fact, things are still getting significantly worse for the majority of the households and especially those in the poorest categories, because they likely have nowhere else to cut from.
If that 12,000 a year was the base amount on food for a family and the family was spending around 35% on their food, it would put the household at around 35,000 a year. Once that climbs to the 2020 15,600 amount, they would now be spending 45% of their income on their food.
It doesn't matter the rate of inflation is dropping, if the salaries aren't increasing.
It is just a slower death.
We aren't predisposed to understand inflation numbers, or visualize what it actually means, which is why most people don't get compound interest. However, not getting it doesn't mean it doesn't have an affect on our lives and for me, it is always useful to create illustrations of what is going on so I have some idea that when I read a headline like the one above, I am not blinded by the numbers, and can understand how it affects me directly.
Going through this process also helps me get a better view on the opportunities I have to mitigate risks, or the impetus I need to make cuts, or add income streams to cover the increasing expenses.
If we aren't increasing our income more than the inflation rate, we are getting poorer.
Taraz
[ Gen1: Hive ]
