Many of life's necessities are going to cost you more in 2014. We'll tell you how much more they're expected to rise.
There’s a reason McDonald’s hamburgers sold for 15 cents in 1955 and are now $1-plus, depending on where you live: It’s inflation.
Inflation is the economic principle that explains why everything costs more over time. Or, for a more depressing spin on inflation, it’s the reason your money is worth less today than five years ago.
If you’re wondering how much more you can expect to shell out this year for everything from basic living expenses to your kid’s college tuition, watch the following video. Money Talks News money expert Stacy Johnson gives you the lowdown on how much prices are expected to rise in 2014. Then read on for more details.
Inflation keeps prices on the rise
Inflation is one of those words we throw around a lot when talking about the economy, but if it’s a hard concept to wrap your mind around, take heart. Entire books have been written on the subject, and we still feel confused.
Ultimately, inflation is the result of complex factors, including:
- Government policies.
- The job market.
- Supply and demand.
- Currency exchange rates.
- The national debt.
But unless you’re planning to major in economics, let’s forget all that for the moment.
For you, as an average citizen, the important thing to know about inflation is that it is going to make things more expensive in the coming year.
How much more expensive is up for speculation, but 42 forecasters surveyed by the Federal Reserve Bank of Philadelphia say core inflation should be about 2 percent in 2014.
In a nutshell, that means what cost you $100 in 2013 will cost you $102 in 2014. Not bad, right? Well, not until you realize that core inflation doesn’t include things like food and energy.
All in all, it’s good news
The bad news is that prices for food, tuition and health insurance will be going up, but the good news is that most of those increases won’t be much over inflation or won’t be nearly as large as they’ve been in recent years.
Here’s what to expect:
- Food prices. According to the U.S. Department of Agriculture, increases in food costs should be on par with inflation, about 2.5 percent to 3.5 percent.
- Gas prices. It shouldn’t cost you any more to fill up at the pump this year. The Energy Information Administration predicts that regular gas will average $3.43 a gallon during the next 12 months, which is roughly the same as 2012 and 2013.
- Tuition prices. College tuition rates continue their march onward and upward. The College Board says the cost of in-state tuition at four-year public universities will likely go up 2.9 percent in 2014. That may be more than inflation, but it’s also the smallest increase in 30 years. In fact, just a year ago, tuition hikes averaged 4.8 percent. In addition, one of the largest single-year increases recorded by the College Board happened in the 2009-2010 school year, when average in-state tuition rates at four-year public institutions jumped 9.3 percent.
- Health insurance rates. Finally, we come to health insurance rates. The Health Research Institute at PricewaterhouseCoopers says the rate of inflation in health care spending will slow this year to 6.5 percent. It said:
The trend is a key ingredient in setting insurance premiums. After accounting for likely changes in benefit design, such as higher deductibles, HRI projects a net growth rate of 4.5 percent in 2014.
However, PwC notes that premiums vary widely, depending on factors like location and the type of plan.
Says the Los Angeles Times, “According to a number of industry surveys, employers will see a lower-than-average jump in health benefit costs of roughly 5 percent in 2014, due largely to health care costs rising at a historically low rate.”
What it means for you
The bottom line for you and every other American is that your costs will go up in 2014, but probably not by much.
As you are revising your budget for the new year, you’ll likely want to beef up your grocery, college and health care categories. Of course, by how much depends on your particular circumstances, like where your child attends college and the health plan you have at work.
Although it is overall good news to see many prices staying relatively steady, there is a downside to a low inflation rate. You may not get much of a raise this year. Some employers use the inflation rate as their basis for cost-of-living raises. Social Security beneficiaries already know that – their cost-of-living adjustment for 2014 was a measly 1.5 percent.
Inflation isn’t some pie in the sky concept that only affects economists. It touches every person who spends money, earns an income or receives money from a government program. Depending on whether you are talking about spending your money or earning it, the 2014 inflation predictions are a mixed bag.