Household Inflation & Commodity Prices

By DataAnalytics

So, how far is your dollar stretching these days? We know, not very far.
It seems that almost everything costs more today than it did last year at
this time. Well, in fact almost everything does cost more. But wait, the
BLS states that consumer inflation has increased only 3.4%. Really?

Well, you can forget the mostly impractical CPI-U Index published by
the government. What matters abundantly and has a significant
impact to the average consumer is Household Inflation.

Those household ‘commodities’ are the everyday items we all use and mostly
need with a few basic ‘wants’ in the mix as well. Such as; Food, Fuel, Apparel,
household Appliances and Electronics.

According to the “Basket of Goods” utilized in the governments CPI-U index,
inflation is approximately, +3.4% (NSA). The simple fact is that this ‘measure’ of
inflation is not relevant or indicative of real-world household/consumer price inflation.

The fact is that aggregate household-commodity inflation on nominal prices
from one year ago in October- (y-o-y comparative analysis ) for these items-
(Food, Fuel, Apparel, Appliances and Electronics) has risen +35.30%. (cumulative)
(For a breakdown of commodities and price-levels, see the graphs below)

What this really means is that the purchasing power of the average U.S. consumer
has greatly decreased, approximately 35% for these basic staples from 2010.

So what exactly has been the causation of the rapid acceleration in food, fuel,
clothing and electronics then? It”s certainly not Demand-Pull inflation. ‘Demand’
for most household commodities and gasoline has been less than last year and
personal consumption has dropped a whopping 24% from Q2 to Q3.

Could a portion of commodity inflation be tied to a Cost-Push? Perhaps,
but it would be a minor amount of the overall aggregate price rises.

Well on the food side, we know that the prices of cornmeal, sugar, rice and wheat
have been driven up by a variety of factors- first, is the slight drop off in crop
yields and second, is speculation as well as the effects of monetary supply
and wage stagnation.

inflation cereal rice pasta eggs

inflation cereal rice pasta meat eggs

Total Rise of Cereal, Rice, Pasta, Cornmeal, Meat, Poultry, Fish, Eggs: 20.82%

inflation milk fruits bread

Total Rise of Milk, Fruits, Vegetables, Bread: 24.39%
(Total Aggregate Rise of Staple Food Commodities: 22.60%)

Examining Apparel, Appliances and Electronics, specifically, home video
and audio, we see only a moderate increase in price levels from Oct. 2010.

tv clothes appls

Total Rise of Apparel, Appliances and Electronics: 5.54%

On the fuel side, it is down to OPEC and to some extent, futures trading. We know that
OPEC will no longer sell crude for less than $90-$95 per barrel for any length of time.
This ‘built-in’ price floor sets the stage for the loosely monitored, but undeniable
‘fixed-pricing’ basis on crude. Mix in speculative trading and the market is able to
some extent, manipulate the cost per barrel.

avg gas prices

Total Rise of Regular Gasoline Per Gallon Nationally: 7.15%

Given the fragile state of the U.S. economy and the unprecedented
unemployment/underemployment rate of 22%-23%, how much more
price inflation can the average household absorb?

An ideal economy retains price-stability, which at the moment we have
none of. So what does our inflation analysis reveal? Well, the obvious is that
most household commodities are costing over 35% more than they did in 2010.

Secondly, price-inflation seems to be somewhat fragmented and without argument,
some of these price rises are transitory, with a historic trend of being somewhat
predictable. But that has not been the case as of late.

Yes, most household food commodities have been shifting downward since
the beginning of 2011, with retail gasoline following suit, while the rise in rents are
averaging only about 5% nationally. On the other side of the coin, housing asset
prices have declined and continue to fall, with auto prices remaining fairly stable.

So as we close out 2011 the U.S. economy remains in a state of flux with most
tangible assets deflating, while commodities are still above 2010 price levels and
could easily rise again. The bigger question looming is what will this ‘push-pull’ yield
going into 2012? Much of it depends on the broader macro-picture, the all important
labor market, the presidential election and the Eurozone crisis will all play a role in the
macro economic picture.

The bottom line is that the variables involved, both domestically and abroad are
unknown in terms of predictability and performance. The U.S. as well as Europe
and parts of Asia could remain in this unstable economic environment for a couple
of more years or perhaps even longer. But here at home, the dollar can only be
stretched so far, before it eventually breaks.

 

For analysis purposes the following methods were implemented
*price averages reflect the retail mean.

*each commodity group was weighted.
*food commodities combined. (previous correction)
*apparel, appliances, electronics combined
Partial data derived from IndexMundi, IBD and consumer surveys

The Long-Term Unemployed – Demise of the Middle-Class

By DataAnalytics

While Congress and the most disappointing administration in decades praised their own
efforts and actions in seemingly lowering the U3 unemployment rate last Friday,
from a supposed 9% to a reported 8.6%, they ignored many negative glaring facts.

Indeed, the Private Sector added 120k net jobs, (revised down to 100k) but
-315 thousand workers gave up searching for jobs altogether, which is why the U3 rate dropped.
The U.S. is averaging approximately -350k first-time unemployment claims per week.
While only averaging about 125k jobs added per month. It takes at least 100k per month
just to keep the rate steady and a minimum of 200k per month to lower the UE rate.

Now on to the more disturbing and eye-opening statistics-
Long-Term Unemployment. The mean (or the average for those not familiar)
duration of unemployment in November 2010 was 34 weeks.
The mean duration of unemployment in November 2011 WAS a whopping 41 weeks.
A very sharp and alarming  increase of +7.1%.

Historically, the delta between the U3 and U6 rates has been approximately 3.9%. The spread has been up over 5% now. Another alarming data point is that 43% of all jobless persons are now the Long-Term unemployed. The U.S. is closing in on nearly half of the unemployed being out of work for a minimum of 27 weeks all the way up to 260 weeks.

Up until mid-year, the duration had been hovering in the 30 to 35 week range,
but has now made a significant jump since late 2010. What does that data reveal?
For one thing, unemployment is not easing or subsiding at all. In fact, it is worsening.

The BLS is simply deceiving the American public. The labor market is in
serious trouble and no one is tackling the problem head on. A lot of rhetoric and finger-pointing
from politicians, but no action. As the duration of the long-term unemployed keeps climbing,
so does the desperation and the continuing erosion of the middle-class.

Another interesting point to note is that the BLS changed the long-term
metric from 24 months or 100 weeks to 60 months or 260 weeks.

The take away here is that more and more workers are going without a job
for longer and longer periods of time. The negative results will be felt as purchasing power is reduced further and further. And, as household/consumer inflation keeps rising, the value of a dollar will keep sinking.

Our prediction is for a continuation of a depressed economy, more foreclosures
and higher commodity prices well into 2012. As it is, foodbanks and food pantry’s
are stretched to their limits. There are approximately 43 million people receiving food
stamps and 16 Million children in America living in poverty. Very sad and shameful indeed for
one of the most wealthiest nations in the free-world.

Gas Paradox: Falling Demand, Rising Prices (via WSJ)

U.S. gasoline demand has dropped to a 12-year low, yet consumers are paying the highest-ever prices for this time of year. The reason: Rising global oil prices are in the driver’s seat.

The paradox isn’t limited to the gasoline pump. Home-heating oil users will see record-high bills, despite using less fuel, according to an Energy Information Administration forecast.

Diesel fuel prices are up 25% from a year earlier at record November levels, fueled by a powerful one-two punch of surging demand both in the U.S. and abroad, the EIA and analysts added.

Prices for gasoline, diesel and heating oil are determined by global demand and worldwide crude prices. That notion is sometimes lost, with the emphasis misplaced on the U.S. benchmark.

Read More Here

An Austrian Economic View (via Carmen Alexe’s Blog)

With his essay “An Austrian Economic View” posted today at GoldMoney, the economist and former banker Alasdair Macleod, today challenges the Keynesian and monetarist market manipulators as powerfully and yet as succinctly as ever could be done.

Macleod writes that if the market manipulators ever open their minds to an alternative, “The first thing they will learn is that the economic benefits of credit expansion are a myth. All it does, by a process of capital redistribution — from savers to those who are first in line to receive the new money — is distort the economy and restrict its long-term potential.

By lowering interest rates and diverting private-sector resources from genuine production to government spending, the economy becomes less efficient and malinvestments occur.

Read More Here