High inflation hits everyone actively participating in the economy, although its effects aren’t distributed evenly across the United States. To understand inflation and get a sense of where we’re headed, it can help to compare the recession of the early 1980s to now.
These categories are good places to begin:
- Employment rates
- Cost of living
- Decline in purchasing power
- Gas prices/Geopolitical turmoil
- Groceries expenses
- Vehicles costs
- Building materials
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This article will help to show how we got here. First, the U.S. population was 231.7 million in 1982. On January 1, 2022, it was reported to be 332,403,650. This difference is approximately 100 million more citizens now than 40 years ago.
The annual U.S. inflation rate was 6.16 % in 1982, compared to now, at 7.9%.
Employment Rates and Inflation
In 1982, the economy was sinking deeper into recession. The unemployment rate was at 10.8%, higher than any period following a World War. About 12 million people were jobless, according to the Department of Labor.
According to the Bureau of Labor Statistics, the unemployment rate was 3.8% as of February 2022, totaling 6.3 million unemployed individuals.
Note: the highest unemployment rate reached 14.7% in April 2020, right after COVID hit. As employment rates gradually improve, wages will need to increase to match inflationary effects.
As for the American wage comparison, the average income for 1982 was $21,050. In January 2022, the median household income was $74,099.
Cost of Living and Inflation
The standard of living seemed so much simpler four decades ago. The average monthly rent was around $320.00. Today, a one-bedroom costs $1,684; a two-bedroom costs $1,997, on average. That’s around six times higher.
In 1982, the average cost of a new home was $82,200. New homes cost a lot more in 2022 due to raw material cost increases and supply shortages over the past year. The national average plateaued at $443,200 in August 2021.
As for median home price by state in 2022, Utah is ranked number ten on the list of highest-ranking states, at $279,100.
Increasing inflation costs are reminding Americans of the advantage of homeownership; a fixed mortgage during high inflammatory times provides vast savings. Real estate ownership is widely considered one of the safer inflation hedges.
Decline in Purchasing Power and Inflation
In 1982, $1 was equivalent to about $2.94 in purchasing power now. This shows an increase of $1.94 over four decades. That means the average inflation rate of $1 has been 2.73% per year between 1982 and 2022, producing a cumulative increase in price of 194.01%.
A more straightforward way is that today’s prices are 2.94 times higher than average prices in 1982. Today, a dollar only buys 34.014% of what it could buy back then.
Gas Prices and Inflation
The U.S. embargo impact on Iranian oil was apparent in 1982 when gasoline prices peaked. Gas prices have increased from $1.36 to $3.59 per gallon between then and now. Gas prices average differently per state, based on local inflation; as for Utah, gas prices currently loom around $4.25.
Due to the global turmoil between Russia and Ukraine, oil and gasoline prices rose even more in comparison to 2021. Gas prices are expected to top $5 per gallon since Russia is in the top three global oil producers. With that supply cut off or disrupted, it does not look good for prices at the pump.
Grocery Expenses and Inflation
Between 1982 and 2022, common staples/groceries have increased. The U.S. Bureau of Labor Statistics reports that prices for food and beverages are 197.92% higher now versus in 1982 (a $1.98 value difference). In 1982, food and beverages at $1 would cost $2.98 now for the same purchases. For example:
- Bread prices rose from $0.54 to $1.58 per loaf
- Egg prices rose from $0.93 to $2.00 per carton
- Chicken prices rose from $0.71 to $1.63 per one pound of whole chicken
Vehicle Costs and Inflation
As technology advances, so does the cost of our luxuries, like transportation. Between 1982 and 2022, the cost of vehicles has drastically increased. New car prices averaged $7,983.00 in 1982.
For example, a GMC 1500 pickup was $5,400 40 years ago. Now, a new base model 2022 GMC Sierra 1500 pickup’s MSRP is $34,600 (single cab).
Due to the modern electronic architecture used by the current automotive companies, this industry was hit hard by the global semiconductor shortage. This has slowed the production and delivery of vehicles in the U.S, creating a spike in the cost of new and used cars. Such products were not available 40 years ago—we’ve come a long way since.
Building Materials and Inflation
Lumber and other wood products fluctuate more than most goods in price since building homes, and other structures can increase or decrease quicker than sawmill capacity. The cost of raw materials like steel, plastics, and timber has surged due to COVID-19 and supply chain disruptions.
Compared with the baseline of 100 in 1982, the production price index (PPI) for construction materials and components in America has increased steadily, reaching over 300 in 2021. This indicates that over 40 years, the real-world price has risen 203.4%.
The Bureau of Labor Statistics reports the index for lumber in 1982 at 100. It peaked in June 2021 at a whopping 548. As of February 2022, the index was 379.
What Does This Tell Us?
This highlights the need for a strategic wealth management plan that accounts for higher inflation markets, rising prices of goods and services, the cost of living index, and your short-term and long-term personal finance goals. Everything can be accounted for, ensuring a clear path to retirement.
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