Price inflation has supposedly gone down to just over 3% annually. That is, the rate has gone down, but prices keep going up.

It is impossible to say exactly how much consumer prices are changing as a whole at any given time. The government uses some complicated formula to compute the CPI.

There are so many variables such as the quality and quantity of the products being consumed. There is a factor of substitutions. There is a variable of having different prices in different places. And perhaps most importantly, different people consume different products.

So you could have the price of eggs go up 10% while the price of milk stays the same. But that doesn’t make the eggs/ milk index at 5% because different quantities are consumed. Plus, some people eat eggs and don’t drink milk and vice versa.

Overall, I believe that the CPI is generally understated. I still use the metric because it is good for seeing the trend. It is also important because other people use the metric, including those who set monetary policy. They can say they use other inflation metrics, but you better believe that they are looking at the CPI numbers when they come out each month.

Insurance Costs

This is one reason I can say with some certainty that the CPI is understated and that middle class America is seeing a reduction in living standards (at least for those who aren’t accumulating debt or reducing savings).

It is acknowledged now that wages have not kept up with the cost of living over the last couple of years with high price inflation. But the picture is probably worse than is often portrayed.

I can speak anecdotally, but I know the numbers will back this up. For me, insurance costs have been going up significantly. That includes homeowners insurance and car insurance. I believe my medical insurance is going up next year.

My homeowners insurance has about tripled in the last few years. It was actually worse for a short period of time before I got a new roof. Now, I live in Florida, and it has been especially bad in Florida because of a combination of bad law and hurricanes. Still, I believe these rising premiums has been an issue in most places, even though Florida may be a little worse.

My car insurance has gone up almost 50% without any new claims. Plus, I have actually had reduced driving due to working remotely.

Let’s Do Some Math

Let’s do some simple math with a middle class American family. Let’s say the family makes $100,000 per year. They get a 3% raise in income from the previous year, so they now have an extra $3,000 before taxes. After you take out taxes, maybe it is $2,400.

The family owns a house, and the annual premium for their home insurance went from $1,200 to $2,200. Their car insurance for two cars went from $1,500 annually to $2,200. Their health insurance premiums went from $6,300 per year to $7,000 per year. That’s $1,000 plus $700 plus $700. That’s $2,400.

So in this hypothetical yet very realistic scenario, the family is paying $2,400 more this year for three different types of insurance combined. But the family is only making $2,400 more in income after taking out taxes.

But those are just three expenses. What about food and gasoline? What about clothes? What about the electric bill? What about the cost of car repairs and maintenance, let alone the cost of actually getting a new car?

This is a simple demonstration of how the middle class is getting destroyed.

The Middle Class Gets Hammered

If someone making $500,000 per year sees his total insurance costs go up by $5,000, it isn’t going to make a big different in the person’s life.

When a family is living on a tight budget already, an extra few thousand dollars just from insurance costs alone is brutal. When you just add in the food from the grocery store, it makes it really tough for the average family.

Of course, it may be even worse for someone who is poor and has a low income. Even with government welfare, it is still rough.

I just can’t imagine that the average middle class family is accepting this very well. Sure, they do what they have to do. They make a budget and find ways to cut. Maybe they find extra ways to make a few bucks here and there.

Politically, I have to imagine that something will change. There will be some who call for more socialism, but I think there is a general realization that calling for more socialism means calling for more government intervention. At this point, I would hope that most people understand that it is the government that is making us poorer, even if a lot of people can’t quite articulate how.

Something is going to change. Either we will just keep getting poorer, or the masses are going to revolt in some way. The big question is how they will revolt and what changes will come about.

Will we move towards greater liberty and greater prosperity, or will people allow the government to continue to grow its power and make us poorer? I don’t have the answer at this time.