As we round into the holiday celebrating the American colonies' independence from England, I cannot help but feel we’ve come full circle.
“Inflation is a tax without legislation” – Milton Friedman
To begin let us review what metrics are used to cover inflation.
The Starter is Median Consumer Price index (CPI) from the Federal Reserve:
What goes into it? Well, you can look at the current components, on the Federal Reserve Board of Cleveland’s website. Indicating how Vehicles Insurance, Fuel, Apparel, Tobacco which have very low impact and rent, dining out, and medical care services, and recreation which apparently have very large components.
You could look at PCE (Personal Consumption Expenditure Inflation), which requires a download to understand its component.
Of which 13.5% is based on Owner-occupied stationary homes. Clearly that is an important measure of price inflation, certainly when electricity is 1.6% and furniture is 0.6%. How they come up with these calculations is beyond my education level. But I’m sure the average American cares more about “Other meats” and “Beer” pricing than “Final consumption expenditures of nonprofit institutions serving households (NPISHs) (132).” The Federal Reserve thinks otherwise with the two-former contributing less than 1% each and the latter 5.89%.
Perhaps, we should consider something we all need, which is health care.
These increases demonstrate inflation of 4-5%, and we know this is a broad concern continuing through the next few years
We can see inflation is alive and well, at least from the lens of healthcare costs and what we see as education, the four-year degree, again a 4-5% average increase each year. The source data for Value Penguin is from the National Center for Education Statistics.
So perhaps if the government and Federal Reserve’s discourse about low inflation, begetting low rates, begetting low economic growth is from the frame of reference of living in a trailer park. Certainly, its not about having quality health care or an education. Perhaps watching the commentary and braggadocios of the political leaders discussing a great economy with Powell https://www.youtube.com/watch?v=1yT432hB_1I
Tracking the average cost of those things we can easily see, inflation has been alive and well since 2009, despite the government being able to borrow below 4.5%.
Inflation is continuing for Main Street, perhaps soon it will come for Wall Street and our government's borrowing rate. A lot of investors are clinging to currency hedges such as gold and bitcoin. In the next article, I’ll break down some other ideas.