In today’s Exponential Investor

  • My true love never takes me out any more…
  • The opportunity cost of the must have versus want
  • Don’t buy tinned soup… buy this instead

It’s time dear reader, for me to introduce you to the love of my life.

Meet Kevin.

Source: Shae’s overloaded smartphone

He’s three tonnes of steel, bright yellow and very good and climbing big steep hills. I’ve spent far more money on him them I’m willing to admit. But he does have the most wonderful accessories for all sorts of off-roading.

The year before the pandemic he got some new suspension, which lifted him about five centimetres – or, if you prefer, two inches – higher off the ground then before. I have it on good authority that watching my five-foot four frame climb into the driver’s seat of Kevin is similar to watching a toddler insist that they can get in the back seat all by themselves.

But those extra two inches sure do make getting over rocks easy.

Well, it did.

You see, Kevin may be my soul mate, but he and I don’t go out much any more. And I’m not sure when our next adventure will be…

Inflation and its effect on Kevin

“Er, we might need to cancel camping this weekend” my father messaged me back in March.

My father has an equally capable four-wheel drive – which is a good thing because we’ve spent the past 20 years being weekend warriors together.

We had a camping trip planned into the Australian high country in the middle of March. It’s the perfect time of year for a bush trip. The tracks are still dry, so you’ve got control (not like the wet track above where you have zero traction). The worst of summer is over, so you don’t roast like a chicken in your tent.

Overall, though — and I cannot emphasise this enough — March means less flies.

The thing is petrol prices had just reached A$2.20 per litre. A$2.40 for diesel. Given that we both have 150 litre tanks, we were looking at some A$330 (or GBP188) to fill up each car. That doesn’t include the extra 50 litres or so in emergency fuel that we would carry either.

Inflation and its impact on rural and regional Australia

That money would be for 48 reckless hours of seeing if we could get a car up big, steep rocky hills.

We asked ourselves, do we want to skip the weekend and wait for petrol prices to come down?

The answer was yes, and so we started to plan a trip for later this year.

Granted there was the start of an actual land war on in Eastern Europe, so our sacrifice hardly compares.

But that war had triggered an energy price spike, which in turn altered our behaviour.

What was lost (or at least postponed)? The answer is a weekend where we would have stopped at a couple of country towns and had a meal with locals. We would probably have driven by the roadside market stalls and bought some fresh fruit. We would have paid the camping fees in the national forests.

So, there were at least six or seven small family-run businesses that missed out on our custom that weekend.

Of course, losing one or two customers doesn’t matter. Multiply it by ten and those businesses have a problem. Imagine how many other weekend warriors chose to “wait and see” as well…

Inflation and its effect on you

The problem with inflation isn’t just high prices, it risks becoming a self-fulling prophecy.

My next camping trip won’t be least until September, until the wet tracks dry out. Then again, if petrol prices stay above A$2 a litre, I may find myself saying “Christmas just around the corner.”

In the meantime, all these tiny country towns that rely on tourist dollars will have ended up in a precarious position because people made the decision to hold off on the “needless” spending in favour of the “necessary” spending.

In other words, people stop spending on the fun thing but bring forward purchases and the things they must have to survive.

Australia has finally joined the rest of the Western world with high inflation. Admittedly, inflation here in the Lucky Country is still half of what it is officially in the UK.

Nonetheless, the inflation rate striking 5% in Australia has been enough to spook my friends and they’ve urged me to “stock up”.

One told me that they’d blown two grand at Costco (a stack-it-high-sell-it-cheap wholesale retailer from the United States with three outlets across metropolitan Melbourne) buying essentials this weekend. Another friend said that she had bought as much tinned food as their pantry could handle – adding that they are going to make room in the shed for another trip, “before prices rise further”.

These two are perfect examples of inflationary psychology. That is the urge to spend more quickly than normal because they believe prices will rise further. Both of them are convinced they’ll save money buying now rather than later.

In short, they’re more worried about what they don’t know than what they do know.

If lots of people carry on like this, it risks making price rises worse. Too much money chasing too few goods can drive prices up more quickly.

Worse, it can lead to shortages of goods… something else that can nudge prices higher faster.

More to the point, how much money is being “saved” by buying lots of tinned food today?

Is this the best way to ride out an inflationary spike? No, I doubt it. However, buying more staples makes people feel like they are doing something to protect themselves from inflation.

So, what’s my advice?

Frankly, rather than spend four figures at an oversized grocery store, put that money towards gold, cryptos or non-discretionary retailer stocks that tend to perform well when inflation takes control.

Until next time,

Shae Russell
Co-Editor, Exponential Investor