CPI vs. "Main Street" Inflation
I recently penned an article entitled "Deflation: The Fed's Real Worry" which discussed the downtrend in the composite inflation index (which is an average of core CPI and PPI) and the potential impact on economic growth. I stated that:
"[The] wave of disinflation continues to be much more prevalent than previously expected. The latest inflation readings (both the Producer and Consumer Price Indices) show deflationary forces still at work. The core reading for PPI declined in May to 1.6% while CPI remained flat at 1.7%. However, PPI and CPI mask the true economic pressures on the consumer as wage growth remains stagnant, economic production is stalling and price pressures are falling. More importantly, there are downward pressures on the most economically sensitive commodities such as oil, copper and lumber which indicate weaker levels of economic output both domestically and globally. The battle against the deflationary economic pressures has been what the Federal Reserve has been forced to fight since the financial crisis."
Not surprisingly when I discuss the government's measure of inflation it is generally met with much "angst and fervor" by individuals professing that the government's measure of inflation has nothing to do with reality. Of course, anyone that has read my work long enough knows that I strongly agree that huge gap currently exists between Wall Street and Main Street.
"I have often spoken of the disconnect between Wall Street and Main Street. While asset prices are inflated by continued interventions of monetary policy from the Federal Reserve, boosting Wall Street profits and widening the wealth gap between the top 20% of Americans and the rest, 'Main Street' continues to suffer a from a rising cost of living and falling wage growth.
The problem is that as the cost of living rises over time due to the effects of inflation - median household incomes have fallen."
The folks at Mint.com came out with a terrific chart showing the real cost of living from spending patterns collected from 2 million members who opted to provide demographic information about themselves and their activities and measures spending patterns from January 2009 until now. The results are quite alarming and go to the heart of the disparity between the governments view of inflation and that of the average American. It's no wonder why despite a massive surge in asset prices - economic growth continues to struggle.