AIER has developed a new and very useful index that measures price changes among goods and services that most of us purchase regularly. This greatly improves our ability to measure the cost of unanticipated price inflation and the impact it might have on investors’ household budgets. It is clear that the Consumer Price Index (CPI-U) is inadequate for this purpose. This has important implications for traditional inflation-hedging vehicles.
Monetary expansion allows the U.S. government to spend beyond its means. To the extent this results in unanticipated price inflation, it presents a significant risk to an investor’s household budget. The CPI is cited commonly by the media as the measure of changes in households’ cost-of-living, and is used extensively by financial planners when they assess household budgets and formulate investment strategies.
Many investors tell us that the CPI in fact understates changes in their personal day-to-day living costs. They grow more frustrated when the media reports that the Federal Reserve, when establishing monetary policy, refers to an adjusted CPI that excludes food and energy prices. Many of us after all routinely fill our gas tanks for more than $50 each week and families can easily spend $200 for a trip to the grocery store.
Our parent, the American Institute for Economic Research (AIER) has responded to these concerns. Their recent Economic Bulletin provides a detailed discussion of the CPI (and other price indexes published by the Bureau of Labor Statistics), and introduces the Everyday Price Index (EPI), an innovative alternative that is far better suited for household budgeting and investment planning.
The CPI, and several variations produced by the Bureau of Labor Statistics (BLS), is entirely appropriate as a gauge for the Fed and other agencies to use when determining policy. The Fed’s objective is to measure the extent to which expansion of the money supply is affecting broad based price inflation in the economy. Food and energy prices are extremely volatile and distort this evaluation, so it makes sense for the Fed to exclude these. (Continued)
Also in This Issue:
New to the Dow 30 Table: Dividend Changes
A Reader Inquiries
Dividend Paying Stocks: Avoid the Frenzy
Vanguard Delays Launch of International Bond Fund
The Back Page Explained
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Asset Class Investment Vehicles
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