May 2013 Index June 20, 2013 Prices Have Been Rising in Other Areas as Well An article from Lisa Scherzer, finance editor for Yahoo Finance’s The Exchange, earlier this month listed ten items that have risen significantly in price over the past 10 years. In the article she noted that: 1. Fuel oil and other fuels (for home) have risen 145% 2. Gasoline is up 108% 3. College tuition has risen 88% 4. Hospital services have risen 85% 5. College textbooks are up 83% 6. Elementary and high school tuition and fees are up 67% 7. Beef and veal prices are up 64.8% 8. Eggs are up 58% 9. Veterinarian services are up 63% 10. Tax return preparation and other accounting fees have risen 51% due to increased tax complexity. We will continue to monitor and discuss price changes in the economy. You will find these frequent reports on this website and in our weekly letters. Stay tuned.
April 2013 Index 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
March 2013 Index May 16, 2013 Inflation — Still Held at Bay The April 2013 inflation data in the U.S. are being released, and it shows that prices are falling…not what the Federal Reserve wants to see. Wholesale Prices, sometimes referred to as the Producer Price Index (PPI) data yesterday showed a decline of 0.7 percent in April, primarily due to a drop in energy prices. These wholesale prices, which are supposed to track the underlying costs of certain raw materials and producer costs showed an increase of only 0.6 percent for the twelve months ending April 30, 2013. There is a lot of talk about the ‘tapering off’ the Federal Reserve’s continued asset purchases, or the end of QE – a lot of it due to the strong performance of financial markets. However, in our opinion the cessation of their QE seems unlikely as long as the inflation data remains so muted. We believe it will take more than rising stock prices to get the Fed to stop. The Fed has indicated that it wants to see much stronger employment and higher inflation. When will the Fed see inflation numbers pick up? It doesn’t look like a 2013 issue. Nonetheless we are vigilant; and we will use our Guild Basic Needs IndexTM (GBNI) to track the costs of basic, essential needs that Americans must buy every day. We expect the prices of food, clothing, shelter, and energy contained in the index will be a harbinger for rising inflation. Having
February 2013 Index March 21, 2013 The Inflation Targeting Balancing Act According to the U.S. Federal Reserve Bank’s web site, the objectives of its monetary policies are to “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” The Chairman of the Fed has suggested in recent months that the Bank intends to maintain its stimulative quantitative easing (QE) asset purchasing programs in place until the economy demonstrates sufficient strength to generate enough job growth to get unemployment down to 6.5 percent, and can generate inflation of about 2.5 percent. As we discussed last week, the U.S. economy has made some progress on the employment front as the official unemployment rate has been declining; it now stands at 7.7 percent — even if the official numbers leave a lot to be desired. Recent progress aside, “maximum” employment does not look likely any time soon. With respect to stable prices — another area where the official numbers leave a lot to be desired — the numbers are also showing a pickup. The February 2013 data released last week said that consumer prices rose 2.0 percent over the previous 12 months, which is up from January’s 1.7 percent figure. Inflation of 2 percent is still well below the Fed’s desired 2.5 percent target, and is also well below the 100-year average of about 3.2 percent.
January 2013 Index February 21, 2013 Inflationary Expectations: When Inflation Picks Up, What Prices Will You Care About Most? Inflation in the U.S. remains subdued. Consumer Prices (as measured by the current Bureau of Labor Statistics’ consumer basket), was up only 1.7 percent in 2012. Meanwhile, prices at the wholesale level, often referred to as Producer Prices were up only about 1.4 percent for the year. In short, the government’s measures paint a benign picture on prices. The low inflation data allows the Fed to keep interest rates near zero, and gives the Fed latitude to continue to stimulate the economy through asset purchases. Their current asset purchase programs effectively print 85 billion dollars each month. This newly-printed money finds its way into the financial system, asset markets, and commodities. Eventually its effects show up in the prices of items that people purchase every day. In calculating consumer prices, the Bureau of Labor Statistics (BLS) classifies consumer expenditures into more than 200 categories. According to the BLS’s website, these categories are arranged into the following eight major groups, and it highlights some of the components as follows: FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) HOUSING (rent of primary residence, owners’ equivalent rent, fuel oil, bedroom furniture) APPAREL (men’s shirts and sweaters, women’s dresses, jewelry) TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) MEDICAL CARE (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services) RECREATION (televisions, toys, pets and pet