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American like bargains. We love to catch a sale. Stores are packed on Black Friday, the day after Thanksgiving. Unfortunately, certain things only tend to cost more if you put off the purchase. What are they?
It’s not all bad news. Plenty of things can and often do get cheaper. Gas prices are cyclical. When the price of oil goes down in the world market, gas prices at the pump usually follow. Airfares are expensive during the summer and holidays and cheaper in the off season. When a product category becomes too expensive, new competitors enter the market, seeking to win market share by offering lower prices. Waiting can be a good strategy in certain categories.
When clients need to spend money, prices in some product and service categories tend to only move in one direction: Up. Here are a few examples:
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Replacing the roof on your house. This is a project that often needs to get done in a hurry. Sometimes you can plan ahead and get multiple bids, but you may be “getting on a list” and facing a delay in getting your project done. According to the National Roofing Contractors Association (NRCD) post COVID, roofing prices are up 20-40%. (1) If you think you will need a new roof, get it done sooner rather than later.
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Health insurance premiums. According to kff.org, health insurance premiums increased 7% in 2023. (2) That doesn’t sound so bad, but they also report premiums are up 18% since 2018 and 47% since 2013. This is an area when having a professional help you find the best coverage and deductible makes good sense.
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Luxury goods. Brands like Cartier, Louis Vuitton and Gucci can be found at stores in the best parts of town and in upscale shopping malls. In FY2022 Hermes had a return on assets of 19.4% as reported by Deloitte., (3) Luxury goods firms spend a fortune on advertising and promotion. In 2022 LVMH spent $9.502 billion in this area. This product area is unique because their goods never go on sale or clearance. Items with manufacturing defects are generally destroyed, not sold as seconds.
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College tuition. Forbes reports the inflation trend has slowed in recent years. Going back in time, the cost of a college education measured between 1980 and 2020 rose by 180%. (4) Bestcolleges.com reports between 2001 and 2021, tuition at 4 year public colleges rose 5% annually and 3.8% at private colleges. (5) If you are saving for your child’s education with a Colle Savings Plan, talk with your financial advisor about the projected costs of your favorite university.
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Electricity. Power is generally provided by local utilities, which are regulated by the state. Their increases are regulated, however they are increases. The US average annual increase from 1997 to 2021 was 2.36%, but this varies by state. (6) Hawaii, Kentucky and California have the highest average percentage increases. Clients should expect power bills to go up over time.
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Property taxes. There are few, if any circumstances when a municipality will reduce property or school taxes. Often, the situation is the opposite: School taxes can be increased up a certain percentage threshold before a vote by the citizens is required. According to ATTOM, property taxes nationwide were up 3.0% in 2022, vs. 1.8% in 2021. (7) The amount you pay in property taxes is influenced by two factors: The tax percentage, as mentioned above and the assessed value of the property. According to US News and World report, some towns do it annually, others every three years. Property taxes will steadily climb, even more if the property increases substantially in value.
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Medical care. Not every medical bill is covered by health insurance. According to Healthsystemtracker.org, medical care costs have generally grown faster than the rate of inflation. Measuring from 2000 to 2023, medical care costs went up 114.3% compared to the CPI increase of 80.8%. (8) It is important to know what your health insurance does and does not cover. Get advice to get the best coverage.
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Prescription drugs. According to the Department of Health and Human Services, during 2022, the average price increase was 15.2%. 4,200 products were measured and 46% exceeded the rate of inflation. (9) You need a good drug plan too. Professional advice can help.
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Home improvement. Are you thinking of remodeling your kitchen, adding an addition or installing a swimming pool? In 3Q23, the cost of home improvement projects role 6.6% annually. (10) The cost of adding an inground swimming pool is even more extreme. Prices are up 30% since 2021. (11) It looks like a lot of people decided to add a pool during Covid.
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Auto repair costs. According to the Federal Reserve Bank of Minneapolis, auto repair costs are up 17% over the past year. (12) This is substantially higher than the rate of inflation. Holding onto your car instead of replacing it can make sense, but it will be more expensive in other ways.
When clients plan for retirement or consider a lifestyle when they work less and derive income from their assets, it is important to remember some costs increase beyond the rate of inflation and other costs simply increase. It requires planning.
Related: Why I Invest Time Keeping Current on LinkedIn
1 https://hhhroofing.com/2023-inflation/#:~:text=Roofs%20are%20more%20expensive%20in,higher%20than%20a%20year%20ago.
2 https://www2.deloitte.com/content/dam/Deloitte/at/Documents/presse/at-deloitte-global-powers-of-luxury-goods-2023.pdf
3 https://www2.deloitte.com/content/dam/Deloitte/at/Documents/presse/at-deloitte-global-powers-of-luxury-goods-2023.pdf
4 https://www.forbes.com/advisor/student-loans/college-tuition-inflation/
5 https://www.bestcolleges.com/research/college-tuition-inflation-statistics/#:~:text=On%20average%2C%20from%202001%2D2021,at%20private%20two%2Dyear%20colleges.
6 https://www.solarreviews.com/blog/average-electricity-cost-increase-per-year
7 https://www.attomdata.com/news/market-trends/home-sales-prices/attom-2022-property-tax-analysis/
8https://www.healthsystemtracker.org/brief/how-does-medical-inflation-compare-to-inflation-in-the-rest-of-the-economy/#Cumulative%20percent%20change%20in%20Consumer%20Price%20Index%20for%20All%20Urban%20Consumers%20(CPI-U)%20for%20medical%20care%20and%20for%20all%20goods%20and%20services,%20January%202000%20-June%202023
9 https://aspe.hhs.gov/sites/default/files/documents/0cdd88059165eef3bed1fc587a0fd68a/aspe-drug-price-tracking-brief.pdf
10 https://themreport.com/news/data/12-04-2023/home-repairs-steadily-rise#:~:text=According%20to%20the%20Verisk%20Remodel,the%20first%20quarter%20of%202013.
11https://www.poolmagazine.com/pool-news/pool-builders-adapt-to-inflation-in-a-post-covid-economy/#:~:text=Consequently%2C%20the%20price%20of%20an,and%20limited%20options%20for%20travel.