how rising gas prices, and inflation in general, has essentially become a tax on the poor

FRED Graph

During the past month I experienced two new personal financial milestones. The first was my investment portfolio hit a new all time high and the second was the price of gasoline in my state (California) hit a new all time high. As you can imagine, one of these new records made me happier than the other and one of these records got more press time than the other.

As the price of gasoline approached, and eventually passed the previous record, several local TV stations posted reporters at gas stations and had them interview customers as they complained about the seemingly ever increasing cost of filling up their tanks.

That is the negative aspect of inflation: The rising cost of the inputs such as raw materials or labor.

There is also a positive aspect of inflation: The rising value of the finished product such as a house, stocks, bonds or other assets.

This chart from the St. Louis Federal Reserve shows just how closely aligned the S&P 500 Stock Index has been with the national average price of gasoline.  In essence, the stock market appreciation was an “inflation tax credit” that has been used by the wealthy to offset the “inflation tax” of rising gasoline prices.

But what if you don’t have any money in the S&P 500 Stock Index (or any other type of investment for that matter)?

The Market Strategist at the ConvergEx Group recently released the following statistics:

  • 48% of workers ages 45 and up have less than $25,000 in savings.
  • Only 58% of Americans are savings for retirement.
  • Of that group, 60% have less than $25,000 in savings and a full 30% have less than $1,000 in savings.

Other statistics to be aware of:

  • As of July 2012, almost 47 million Americans were on Food Stamps.
  • The U.S. Census Bureau reported the average household annual income for 2011 was approximately $50,000.

Are your investments creating enough “inflation tax credits” to help you offset the “inflation tax” in the goods and services you need?

How the earning, saving and spending of wealth affects various parts of our lives.

Comments

  1. PK says:

    As a fellow Californian, I refer to the high gas prices as the California Air Resources Board Tax (ostensibly to stop smog/clean up Los Angeles!).

    I’m just being snarky, however. I’d say that my investments are keeping up with commodity inflation (we also pay ridiculous electricity rates for related reasons). Oh, and housing prices…

  2. Deacon says:

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