2013 Guild Basic Needs Index
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