We’re getting some mixed signals on the price front.  The U.S. CPI just came out, and seems benign enough:

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in 
February on a seasonally adjusted basis, the same increase as in January, the 
U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the 
all items index increased 2.3 percent before seasonal adjustment.

Energy prices have plummeted and I’m sure you’ve been pleasantly surprised at the gasoline pump.  However, if you’re like me, you’re wondering why it seems you are poorer every month.  In contrast, the PPI for final goods just came out and it was a negative number.

The Producer Price Index for final demand fell 0.6 percent in February, seasonally adjusted, the 
U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.5 percent in 
January and 0.2 percent in December. (See table A.) On an unadjusted basis, the final demand 
index increased 1.3 percent for the 12 months ended in February.

consumerSometimes the answer is in the details.  The year-over-year data can be misleading, since it includes earlier periods when prices were indeed more stable or even falling.  I prefer at times to examine those items which I ‘must’ buy on a run-rate basis.  Yes, I spend lots on gas prices, but these are notoriously volatile and I can’t do much about them except drive less often.  I must spend on my own fuel though (food) so I don’t like to ‘exclude’ this when considering what my cost of living is really doing.  I’m also not likely to stop spending on clothes, accomodation or medical needs.

Have a gander at the following table (U.S. CPI data):

Inflation March 2020 personal

I admit there’s not much information here.  After all, different people (old, young, wealthy, poor) spend a different proportion of their income on different things.  However, it confirms what it ‘feels like’ over the past couple of years.  Savings in energy costs and lower interest rates are probably subsidizing expenditures on the basics.  Once things get back to normal (if that’s even possible) – oil prices rise and interest rates normalize – then consumers will be squeezed.

I’m beginning to understand why there have been so many strikes by laborers and a number of professions of late.  Earnings have not really kept pace with the rising cost of necessities.

 

 

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About the Author

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

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