2012 Guild Basic Needs Index

December 2012 Index

December 2012 Index January 24, 2013 final inflation data for 2012 was released. December Consumer Price Index (CPI) was flat with November due to falling energy prices offsetting rising food prices. The full-year inflation came in at 1.7 percent, well below the Federal Reserve’s 2.5 percent target that might prompt an end to their monetary stimulus programs. 1.7 percent may not sound like a big number, but if you look deeper into the inflation number, and you look over a longer period of time, the numbers get big. For example, the prices of basic, essential needs items found in our Guild Basic Needs IndexTM (GBNI) which measures the prices of food, clothing, shelter, and energy (used for heating, cooking, and transportation) in the U.S. have risen almost 80 percent since January 2000. The CPI’s increase over that period is 36.4 percent. When you consider that household incomes in the U.S. have not grown much at all over that period of time, the decline in Americans’ standard of living is evident. Tracking the Prices of Basic Necessities Last week, the Government’s final inflation data for 2012 was released. December Consumer Price Index (CPI) was flat with November due to falling energy prices offsetting rising food prices. The full-year inflation came in at 1.7 percent, well below the Federal Reserve’s 2.5 percent target that might prompt an end to their monetary stimulus programs. 1.7 percent may not sound like a big number, but if you look deeper into the inflation number, and

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November 2012 Index

November 2012 Index December 20, 2012 Official Inflation Data Says Consumer Prices Fell in November According to the latest data from the Bureau of Labor Statistics, November saw a 0.3 percent decline in prices for all urban consumers. The basket of goods used to calculate consumer prices was primarily driven lower by monthly drops in the prices for energy, medical, apparel, and autos. Year over year, the Consumer Price Index (CPI) basket of goods showed a 1.76 percent increase in prices. The basic, essential needs tracked in the Guild Basic Needs IndexTM(GBNI) also saw a decline from October as energy prices declined. However, the last twelve months saw an approximate 8.6 percent increase in the prices of the food, clothing, shelter, and energy components tracked in the GBNI (see charts below). CPI is Being Engineered Lower to Help Balance the Budget At Guild Investment Management, we have written for years about how inflation data is manipulated and adjusted to show a slower-than-actual increase in the cost of living. We believe that this process takes place in most countries that provide price data — not just in the U.S. This week, the Washington Post discussed one way the Federal Government hopes to reduce its budget deficits and future obligations, by reducing the CPI through the use of ‘chained CPI’. It is no secret that by reducing the admitted CPI, the Fed can slow the growth in outlays it must make for Social Security and other entitlement programs. As we reported last

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October 2012 Index

October 2012 Index November 23, 2012 The northern hemisphere is approaching its cold season — when we can expect energy prices to rise in response to the demand for heat, in the form of electricity, gas, or oil. Likewise, the continuing effects of drought and the ethanol mandate, noted above, will likely lead to higher food prices. These will have a sharp impact on the developing world populations, and a duller — but still real — impact on the standard of living of those in the developed world. We believe that investors and consumers should prepare themselves for the reality that real inflation — the cost of satisfying basic needs — will continue to outstrip the baseline growth of individuals’ earnings. Although core inflation statistics from official sources do not reflect the “volatilities” of food and fuel prices, as consumers, we will feel them. The Guild Basic Needs Index™ will continue to reflect a picture of how inflation in the prices of basic necessities undermines and erodes the standard of living. November 8, 2012 Speaking of Food, Clothing, & Shelter… We will continue to track the effects of monetary debasement in the prices of essential, basic needs in our Guild Basic Needs Index™. Our premise is that increased liquidity caused by QE and other means will continue to buoy the prices of food, clothing, shelter, and the energy needed for cooking, heating, and transportation. Please check the GBNI website for our archives on the subject www.gbni.info. In our opinion, the

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September 2012 Index

September 2012 Index October 25, 2012 Negative Real Interest Rates, Commodities, & Food The global flood of liquidity is finding its way into all asset classes. With real interest rates (short-term interest rates minus the inflation rate) depressed into negative territory, central banks are accomplishing their goal of pushing money into assets that can appreciate, in the hope that this will spark the economic activity that political stalemates are thwarting. This liquidity will drive inflation higher. With extremely low interest rates, cash will be invested speculatively to generate returns. This increases the likelihood of creating feedback loops. As speculation in commodities drives up food and fuel costs, producers horde resources and hold back production while they wait for prices to go up still further. This increases inflation expectations…which then act to increase actual inflation, and so on. Although food and fuel prices are factored out of the government’s “core” inflation statistics, they will be painfully, and ever-more noticeably present when consumers go to the gas pump and when they buy bread. This is especially true if they live in the developing world, where necessities make up a larger portion of household spending. In last week’s letter we discussed the increased likelihood that global food inflation — driven by drought and global currency debasement — is quite likely to cause further instability in geopolitically sensitive regions. This phenomenon is not just a developing world issue. In the U.S., you can see that the costs of basic needs: food, clothing, shelter, and

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