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What is Your Personal Rate of Inflation?


We are being lied to by our own government, which constantly understates the increase in the cost of living. We are told that prices are rising very slowly, and the “proof” is evidenced by the very slow and low increases in the Consumer Price Index (CPI). Simply put, inflation is not a problem, they say. I beg to differ.

Inflation simply refers to reduced purchasing power of the dollars in your pocket. Since 1913 (when the Federal Reserve was created), the purchasing power of the American Dollar has fallen more that 96%. A home purchased in 1913 for $10,000 would cost $257,814 today. According to Uncle Sam, who contends that inflation has averaged 3.2% for the decade, everything is under control.

We don’t believe them (or the CPI), and neither does Ed Butowsky, the creator of the Chapwood Index, which measures our actual cost of living using a simple methodology – he tracks the cost of the same goods over time in constant select cities “across the fruited plain.”

According to Butowsky, The CPI no longer measures the true increase required to maintain a constant standard of living. This is the main reason that more people are falling behind financially, and why more Americans rely on government entitlement programs.”

It gets worse from there, because Social Security has now adopted the so-called “chained CPI,” which takes into account changing consumer behavior. For instance, people shift to hamburger from steak when steak gets too expensive. That may be true, but it certainly isn’t voluntary!

One of the charges given to the Federal Reserve (FED) is to “control” inflation using monetary policy. They have, in an apparent attempt to make us believe them, defined their own measure of inflation, the “Personal Consumption Expenditure,” or PCE. This is, in fact, another way to deceive the public by informing them that they should not believe their own lying eyes.

When we go to the grocery store, and find that prices for our routine purchases are up 8%, 10% or more, we know that the rate of inflation is higher than the FED’s 2% “target.” Much higher. Over time, inflation gets muddled in our minds, but I am old enough (and many of you are, too) to remember 25-cent gas, 10-cent movies, $10,000 houses, and so on.

Don’t get me wrong – I love (some) inflation. Reasonable, consistent inflation. But I detest getting lied to about the magnitude we experience virtually every day. There is no end in sight.

The Chapwood Index (www.chapwoodindex.commeasures the cost of living in the top 50 cities in America. Jacksonville is one of them. For 2018, the Chapwood Index says that our local inflation rate is actually 8%. Further, our 5-year average is also 8%.

Jacksonville is low by comparison to most cities, especially those on the coasts. The highest is Oakland, CA at 13.4%, with a 5-year average of 13.1%. The cost of living in Oakland doubles every 5-1/2 years. Could you keep up?

The FED is signaling a recent rise in reported inflation, and this adds to the many reasons they should NOT cut interest rates. However, I believe they will do so, and then will live to regret their action. In the near future we will discuss investments that thrive during inflationary periods.

Van Wie Financial is fee-only.  For a reason.