Guild Investment Management has long believed that the existing indices used to measure cost of living changes in the United States are inadequate and misleading.
For instance, the widely quoted inflation index — the Consumer Price Index (CPI) — is currently based on data collected from spending surveys given by the U.S. Bureau of Labor Statistics from approximately 14,000 urban families. In addition to basic needs, the CPI includes other expenditures, such as insurance and taxes. However, it also includes discretionary spending items such as personal care services and entertainment purchases such as the latest flat screen televisions and consumer electronics.
Another point about the CPI is that the Bureau of Labor Statistics periodically alters its content, making adjustments to the weighting of the components, and smoothing seasonal patterns. Such tinkering with data, as we have mentioned over the years, usually results in an understatement of the inflation rate and creates an unreliable, misleading cost of living index.
We believe a simpler index is necessary for tracking the price changes of basic needs. No such index exists. So, we are creating one: the Guild Basic Needs IndexTM. It will not reflect spending patterns of one segment of the population. Rather, it will measure the changing prices of essential living expenditures.
Design of the Guild Basic Needs IndexTM
The Guild Basic Needs IndexTM concentrates on four categories of primary and essential living needs. Each category is assigned a specific percentage of the overall index:
Food, clothing, and shelter are self-explanatory and energy is needed for basic heating, electricity, cooking, and transportation.
The categories and their values within the Guild Basic Needs IndexTM are fixed. There is no seasonal adjusting, smoothing, or replacing of components. Due to the established and essential nature of the four Guild Basic Needs IndexTM categories, they are consistent and not subject to passing fancy.