Picking up Nickels

Tuesday, November 06, 2007

Low inflation? Not according to my numbers!

As an occasional CNBC viewer, I am always skeptical when someone like host Larry Kudlow frequently trumpets a low inflationary environment as measured by the government-calculated inflation statistics:

Bears will argue against rate cuts because they worry about inflation. But it's hard to find any continuous inflationary evidence.

In stark contrast to Kudlow's politically motivated position on inflation, I present the following comments that Dennis Gartman (Publisher of The Gartman Letter) made on CNBC show Fast Money on October 10th:

Do you believe PPI? I don't know about you, but my inflation, from my business, from my life ... I didn't have a 2% inflation rate last year. I think my inflation rate was nine or ten percent.

My personal view on inflation was in line with Gartman's, so I decided to take a closer look at my cost increases over the past year. Although I found that cost increases for some things were difficult to quantify (like restaurant meals and clothing costs), I was able to see how many of my costs have compared to the CPI-U number of 2.8% annual inflation over the past year:

Expense Annual Increase
Home Heating Oil 31.6%
Gasoline 29.7%
Health Insurance Premiums 18.1%
Groceries 14.2%
Dental Visit (cleaning & X-Ray) 6.2%
Homeowners Insurance 6.1%
Satellite TV 5.9%
POTS Telephone 5.5%
First Class Postage 5.1%
Standard Analog Cable TV 3.8%
CPI-U 9/06 - 9/07 2.8%
DSL Internet Broadband 0.0%
Real Estate Tax -2.5%
Electricity (cost per kWh) -3.2%
Auto Insurance -10.9%

It certainly looks to me like my personal rate of inflation is far higher than the government claims. And although pundits like Larry Kudlow argue that I can now buy a computer or flat screen TV for historically low prices, I worry about the impact that double digit price increases on necessities like food, gasoline, and health care are having on the average American out there. I am particularly concerned about the 13% increase in grocery spending that I observed in 2006, which is being followed up by the 14.2% increase I have observed so far in 2007.

How can we be in a period of low inflation when the Mexican Central Bank raised rates last month due to inflation concerns? When will our government finally admit that its measurement of inflation data is flawed?


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