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