If inflation chips away at our currency’s value over time, it stands to reason that deflation would strengthen it. But is deflation really so bad for the average Joe? The reality is, even if everything costs less, the median person can only lose so much—$77,000 at most—unless they’re drowning in debt.
Post-pandemic, inflation is finally coming down. But there’s a risk of deflation now, too. So, let’s weigh the costs and benefits.
Food
Americans love to eat. More than half of us are overweight, and food costs keep rising. Imagine if all-you-can-eat buffets dropped to $14.99 instead of $30. Or donuts cost just 25 cents each instead of over a buck. That’s a lot of savings. But beware, post-pandemic inflation might mean investing in farmland.
Housing
Homeownership has slipped to 66%, and for the 37% who don’t own homes, cheaper prices could mean cheaper mortgages. Housing costs are a big chunk of our budgets. Getting them under control would make life easier. But some predict rising prices ahead, so I’m into real estate investments to diversify away from my pricey San Francisco properties.
Healthcare
Healthcare costs in the US are sky-high compared to other countries. $20,000 for surgery here versus $1,000 in Canada? Monthly premiums topping $2,000 for a family of three? If only healthcare costs could drop to match other developed nations. My family pays $2,315 a month! Maybe healthcare stocks are a better investment.
College Tuition
Sending kids to college keeps getting pricier. Public school tuition averages $18,000 and over $40,000 for private schools. Couples delay having kids due to tuition fears. If only college tuition would drop. The longer we wait, the more it’ll cost. Georgia’s HOPE program sounds great—free education if you keep up a 3.0+ GPA.
Oil and Gas Prices
Remember when gas was $1 a gallon in 1994? Now it’s over $4, thanks to geopolitical issues. High gas prices are like a tax on us all, cutting down on leisure trips and spending in places like Lake Tahoe. If gas dropped back to $1 a gallon, I’d be on the road all the time. But I’m eyeing an electric VW ID.Buzz by 2026.
Interest Rates
Americans love to spend money they don’t have. With low-interest rates around 2.77%, mortgages and credit card rates are still reasonable. Refinancing during the pandemic got me a 7/1 ARM at just 2.125%. It’s strange that rates are low with inflation high. Even if the Fed raises rates, they may not go above 2%.
Financial Security
Deflation could help those struggling to afford things. Strengthening our currency means saving more and feeling better off. And it’s the rich who feel deflation’s pinch more, with their assets shrinking. For the rest of us, it could mean lower debts, cheaper tuition, and more affordable healthcare.
Retirees
Retirees welcome deflation. Less work for less pay sounds good to them. They’re not worried about pay cuts or job loss, but shrinking fixed incomes hurt. If what they buy gets cheaper faster than their income drops, retirees win.
It’s hard to say if deflation’s coming soon. For now, we’re stuck in a high inflation phase. But someday, deflation could be on the horizon. If you’re into real estate, it’s a good way to hedge against inflation.
About the Author: Sam started investing in 1995, leading to an early retirement at 34. Now, he spends time playing tennis, with family, consulting for fintech companies, and helping others achieve financial freedom.
Original article source: FS
