Guild Basic Needs IndexTM

Guild Basic Needs IndexTM

April 2013


May 30, 2013


Government Inflation Data May Show Prices Are Lower;  the Prices of Basic Essential Needs are Not 


In countries around the globe, the April 2013 official inflation data tended to show falling inflation rates.  In the U.S., the official data showed consumer prices as measured by the Consumer Price Index (CPI) actually 

declined 0.1 percent during the month.  However, when we measure the prices of certain food, clothing, shelter, and energy components in our Guild Basic Needs IndexTM, we see that the prices of items that people have to consume every day actually rose about 0.8 percent.  Over the last 12 months our GBNI is up about 9.4 percent while the CPI is up a mere 1.1 percent. 


We have often discussed how the federal government -- which makes hundreds of billions in payments that are based on its own calculations of inflation -- would like those calculations to show a lower number.  That being said, there are different agencies within the government that calculate inflation.  The popular CPI is calculated by the Bureau of Labor Statistics (BLS).  The government’s Bureau of Economic Analysis (BEA) also calculates inflation rates.  In 1996, the BEA adopted a chain weighted price index.  Chain weighting refers to the process of continuously updating the index to reflect spending patterns and substitution.  Often this substitution lowers the weight of higher priced items and replaces them with lower priced replacements.  In 2002, the BLS also adopted chain weighting in it CPI, but the methodology is different. 


In general, analysts agree that chain weighting lowers the cost of living calculation; some say it reduces the inflation rate by about 0.25 percent per year.  The various measures have usually been tracking in a similar 

pattern, but recently, the government’s various inflation calculations are starting to diverge.  The BEA’s chain weighted Personal Consumer Expenditure (PCE) -- which is closely tracked by Ben Bernanke and the Federal Reserve -- has dropped considerably in recent months while the CPI data has been more stable.  Nonetheless, both measures are well below the Fed’s 2 percent inflation target. 


Since the Federal Reserve, which is actually trying to create rising inflation, is watching the lower of the two indices, it looks like the talk of tapering the bank’s asset purchases or an end to QE are premature.  We expect more QE in the future.  We also expect rising prices in the cost of basic essential needs in the future… actually, we don’t have to wait for that.  It is here now.

__________________________________________________________________

Exclusion of Liability

This website is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security. This website does not intend to provide investment, tax or legal advice. Guild Investment Management does not represent that the securities, products, or services discussed in this site are suitable or appropriate for all investors. The site may not meet your specific needs or requirements. Any market analysis constitutes an opinion that may not be correct. You must make your own independent investment decisions or obtain professional advice from your advisors before making investment decisions.

The information on this site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Guild Investment Management to any registration requirement within such jurisdiction or country.

The material on this site, including any opinions expressed herein, are subject to change without notice. In addition, there are many market, currency, economic, political, business, technological and other risks that are beyond our control. We make reasonable efforts to provide accurate content on the site. However, some content and some of the assumptions, formulas, algorithms and other data that impact the content may be inaccurate, outdated, or otherwise inappropriate. In addition, we may have conflicts of interest with respect to any investments mentioned on the site. Our principals and our clients may hold positions in investments mentioned on the site or we may take positions contrary to investments mentioned on the site.

BY USING THIS SITE YOU AGREE THAT GUILD INVESTMENT MANAGEMENT, INC. AND ITS PRINCIPALS ARE NOT LIABLE FOR ANY ACTION YOU TAKE OR ANY DECISION YOU MAKE IN RELIANCE ON ANY CONTENT. WE DO NOT GIVE INDIVIDUALIZED INVESTMENT RECOMMENDATIONS, OR ACCOUNTING, TAX OR LEGAL ADVICE ON OR THROUGH THE SITE.

Although the site includes investment related information, you should not consider anything you find on the site to be a recommendation that you buy, sell, hold or otherwise invest in an individual security, or any other investment or asset.

Certain of the content at this web site, including Guild’s current and past market commentaries, is protected by copyright. Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild.

You may have been referred to this site by some other person or organization or may have linked to this site from the website of another organization. We appreciate such referrals, but are not affiliated with any persons or organizations who may have referred us to you, and we do not pay for any such referrals. In addition, any persons making referrals are not responsible for Guild’s portfolio management decisions, which are the sole responsibility of Guild.

Tel: (310) 826-8600 | Fax: (310) 826-8611 | Email: guild@guildinvestment.com
12400 Wilshire Boulevard, Suite 1080, Los Angeles, CA 90025
Copyright © 2012 Guild Investment - All Rights Reserved