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Consumer prices up; household income down

Posted by B. Daniel Blatt at 6:27 pm - February 29, 2012.
Filed under: Economy

Like many of my friends and neighbors in Los Angeles, I have noticed that my grocery bill has increased in the pat year.  And yet, the official reading on inflation shows only a modest increase in prices.  Today at the Washington Examiner, Charlie Spiering provides a statistic which helps explain the discrepancy:

Every year the official Consumer Price Index is released demonstrating the average price hikes experienced Americans each year. Last year the CPI rose 3.1 percent, a seemingly modest hike by many standards.

But the American Institute for Economic Research has released an alternate index, narrowing the scope to items purchesed by the average consumer every month, leaving out “big-ticket items” like cars, computers, and furniture.

According to this index, the prices for everyday items like food, beverages, fuel, power, and prescription drugs have risen 8.1 percent in 2011.

So, it wasn’t just my imagination.  And it’s not just my grocery bill.

To many people, that increase seems even steeper. Since President Obama signed the “stimulus,” John Merline reports, “Median annual household income is about 7% below where it was in February 2009, according to the Sentier Research Household Income Index.”  (H/t: Powerline picks for Merline link.)

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26 Comments

  1. I have no confidence in any numbers put out by my federal, state or city governments………

    Comment by Richard Bell — February 29, 2012 @ 6:55 pm - February 29, 2012

  2. In terms of the games that the government plays with inflation numbers (to try and make them look less horrible)… there’s more.

    Here’s one trick they use. Say Apple comes out with a better iPad. It costs the same as the one before, or maybe more. But the government statisticians say, well it’s new and improved, so let’s count it as a victory for the moral equivalent of lower prices. Apple’s propaganda says you are getting more bang for your buck; let’s go with that story and call it price deflation, which we can use to wipe out some of that other real inflation on the books.

    Here’s another trick they use. Say the price of beef skyrockets, so people have to start substituting more… ? (chicken? pork? cat? horse?) to keep body and soul together. The government says, well look at that, people’s preferences are ever-changing, isn’t it wonderful? But no inflation, because people are spending no more on food than before.

    See http://www.shadowstats.com – The government has repeatedly changed the methods of calculating inflation over the years. By the 1980 method, yes, we are already seeing Jimmuh Carter levels of inflation (8-10% a year).

    Comment by ILoveCapitalism — February 29, 2012 @ 8:53 pm - February 29, 2012

  3. Oh here’s another trick: during the housing bubble, when the cost of housing was going up (yes, that is inflation!), the government said “Well it’s stupid to look at the cost of houses, we should look at the cost of rent.” So that understated things.

    Now that the bubble burst and house prices are down (and rents are starting to go up), the government stasticians are saying “Well it’s stupid to look at rent, we should look at the cost of houses.” Although I’m not sure if they put that change into effect, yet.

    Comment by ILoveCapitalism — February 29, 2012 @ 8:57 pm - February 29, 2012

  4. Hi Dan,
    Two points.
    First, it is not clear, when reading the original report why some things are in and why some things are out. When you actually look at the report, you can see that a big reason for the 8.3% increase is not due to ginormous increases in the price of food stuffs as you and Mr. Spierling appear to suggest, which come in at around 3% or so for the year, but because of a whooping 21% increase in the price of petrol (or gasoline) from 2010 to 2011. This is not startling. Further, the price spike that Mr. Spierling and you point to, appears to have been on the downward slide. I am sure the current spike in oil prices will send the EPI soaring again. But this does not mean that underlying inflation is going to be 15% (as IER speculates). It is not an accident that the EPI rises and falls along with the price of oil products. That variability is one of the reasons why economists use the CPI as well as the CPI without volatile elements (to better see underlying price pressures).

    This leads me to my second point: It is easy to get fixated on the price of oil as an harbinger of inflationary apocalypse. However, if you look at the commodity price index–for agricultural raw resources, and for commodities in general, the trend has been one of falling prices. That is not a harbinger of inflation. It is very consistent with economic predictions made by economists that many here do not like (e.g., Krugman), but the facts back him up. Will the commodity price index rise–probably–oil prices are rising. But, as I have argued before, in my opinion, that current rise in oil prices has more to do with the current war-mongering over Iran, than it does over inflationary pressures reaching the boiling point. I think we will have to learn to live in a higher energy cost future, not because of (monetarily caused) inflation, but because we are in the realm of peak oil, together with a bunch of emerging economies who have voracious demand for that commodity. And perceptions of war in sensitive parts of the world will not help that situation one little bit …

    Comment by Cas — February 29, 2012 @ 11:54 pm - February 29, 2012

  5. Also Dan, if the report is correct, the CPI has an increase in the food and beverages section, of 4.5% for 2010-2011 (look at the bottom of the report). Compare to the EPI, which has a price in crease of 3.56% in the same time period. That seems to undermine Mr. Spierling’s point, though… Now ain’t that a kicker!

    Comment by Cas — March 1, 2012 @ 12:11 am - March 1, 2012

  6. increases in the price of food stuffs as you and Mr. Spierling appear to suggest, which come in at around 3% or so for the year

    LOL

    21% increase in the price of petrol… is not startling

    Not startling to anyone who understands (1) Obama’s war on production and (2) Bernanke-Obama’s war on the dollar; that is correct.

    if you look at the commodity price index–for agricultural raw resources, and for commodities in general, the trend has been one of falling prices.

    Demonstrably false. Corn, for example, is up 2 and 1/2 times over the last 10 years in dollar terms – and that’s with a bad economy, i.e., what Keynesians suppose to be a lack of demand: http://futures.tradingcharts.com/chart/CN/M

    Foodstuffs are famously volatile – having big down moments, as well as up – but any 6 year old can look at that chart and see its basic trend is pointing up. Remember the so-called Arab Spring? Most observers attributed it, at least in part, to rising food prices in those countries… rises so painful that the people felt they had to riot. Food inflation is world-wide, and as all the major central banks are massively expanding their balance sheets i.e. “printing money”, a lot more of it is coming in the next few years.

    Comment by ILoveCapitalism — March 1, 2012 @ 12:55 am - March 1, 2012

  7. Cas, perhaps it’s different in California, but I’ve seen my grocery bill go from about $300/month to nearly $350. And others have noted similar increases.

    Comment by B. Daniel Blatt — March 1, 2012 @ 1:09 am - March 1, 2012

  8. Hi Dan,
    Two points.

    Speaking of “no confidence”.

    Comment by TGC — March 1, 2012 @ 1:12 am - March 1, 2012

  9. Dan said:

    7.Cas, perhaps it’s different in California, but I’ve seen my grocery bill go from about $300/month to nearly $350. And others have noted similar increases.

    I’m with you Dan. Out of curiosity I pulled up Microsoft Money and ran a report on monthly expenditures on groceries.

    Over the last 12 months, the cost of groceries have gone from the $250-$300 range to the $325-$375 range.

    Comment by ChrisH — March 1, 2012 @ 3:20 am - March 1, 2012

  10. ChrisH, so your “electronic ledger” shows expenditures that correspond (almost exactly) to mine. Telling.

    Comment by B. Daniel Blatt — March 1, 2012 @ 3:43 am - March 1, 2012

  11. Hi ILC,
    It does not prove your point when you mention ONE commodity, corn, when the commodity price index for agricultural raw resources as a whole has been on a downward trend since mid 2011. Or that the commodity price index as a whole has been trending the same way. You will have to explain to me why your example of a single agricultural commodity, trumps the overall agricultural raw materials commodity picture.

    Finally,

    Foodstuffs are famously volatile – having big down moments, as well as up – but any 6 year old can look at that chart and see its basic trend is pointing up.

    Check out the link I posted above, and look around the site. I think plenty of folks could legitimately come to different conclusions to you, ILC. And since food stuffs are so “famously volatile,” you might want to hold off on claiming that price rises are due to monetarily fed inflation. The picture looks a lot more subtle than that, I think (given the long slide from April 2011.

    Comment by Cas — March 1, 2012 @ 4:06 am - March 1, 2012

  12. Hi Dan,
    What interests me is whether or not you changed the quality of items bought and whether you substituted between similar products. Though ILC poo-poos the idea of quality, there is a difference between the quality of fresh produce and older produce. ANd also a difference in price. Organic versus non-organic produce, etc. Perhaps nothing has changed for you, but my food bill has not changed appreciably. I do not have much brand loyalty, so I tend to easily substitute one off-sale item for on-sale items of similar quality. One brand of dishwashing detergent is as good as another…

    Comment by Cas — March 1, 2012 @ 4:10 am - March 1, 2012

  13. All I know is MiniPlenty increased my chocolate ration by 10 grams. Hail Obama!

    Comment by V the K — March 1, 2012 @ 6:27 am - March 1, 2012

  14. We’ve been living on 1.5 paychecks for some time now in the Hermitage, and it’s getting harder. Yes turkey and pork have become staples, as has raiding the ‘priced for quick sale’ meats and putting them immediately in the oven or the freezer.

    (Yes I know it’s hard to call three people (and a dog) living in the same place a ‘Hermitage’ but I took in my strays rather than see friends on the street.)

    Comment by The Livewire — March 1, 2012 @ 7:55 am - March 1, 2012

  15. VK,

    All I know is MiniPlenty increased my chocolate ration by 10 grams.

    Double plus good!!! :)

    Comment by Cas — March 1, 2012 @ 2:00 pm - March 1, 2012

  16. Cas, not that you are moved by evidence, but what the heck.

    Live Cattle – http://futures.tradingcharts.com/chart/LE/M
    Pork Bellies – http://futures.tradingcharts.com/chart/PB/M
    Oats – http://futures.tradingcharts.com/chart/ZO/M
    Wheat – http://futures.tradingcharts.com/chart/ZW/M
    Soy – http://futures.tradingcharts.com/chart/ZM/M
    To throw in some non-ags:
    Oil – http://futures.tradingcharts.com/chart/CL_/M
    Silver – http://futures.tradingcharts.com/chart/SV_/M
    Copper – http://futures.tradingcharts.com/chart/HG_/M

    They all show different shapes on volatility (or commodity-specific factors), yet a basic upward trend. And this makes a better ag chart from your website, dontcha think? http://www.indexmundi.com/commodities/?commodity=agricultural-raw-materials-price-index&months=120

    You see, to establish/understand a concept like “trend”, you have to go back more than the 7 months you talk about, “downward trend since mid 2011″. In fact, you have to go back more than 4 years of unusual gyrations in the general economy.

    Double plus good!!!

    You posted that as a joke… but it’s not. Because, in perfect keeping with the underlying philosophy of Newspeak, you also said this with a straight face:

    my food bill has not changed appreciably… [as] I tend to easily substitute

    I mentioned a progression of beef, chicken, pork, cat, horse. I think tofu comes after than, then rice, then starvation. Good luck.

    Comment by ILoveCapitalism — March 1, 2012 @ 5:47 pm - March 1, 2012

  17. Yeah, I’ve seen my grocery bill rise here in Oregon.

    This is a subject I’ve been thinking about lately and I’d love to add a lot more to the debate but since I’m really busy right now, so I’ll just mention one thing I don’t think gets enough attention when talking about increasing prices which is the fact that a lot of companies aren’t raising prices but reducing the amount of product sold per unit.

    I can think of other examples but one thing that standout to me is paper products. I go through a lot of paper towels, and I’ve noticed the rolls are becoming lighter, smaller and need to be replaced more frequently. A while back, I bought a different brand of paper towels instead of what I usually get. It was on sale and the rolls looked relatively large compared to my usual brand, so I thought I found a pretty good deal, but when I actually pulled a roll out of the packaging I found there wasn’t as much as it appeared. The paper was wrapped so loosely that the cardboard tube immediately slid out.

    With food, I’ve noticed this is mostly the case with processed and prepackaged items that often seem to contain less product than a year or two ago.

    Because I don’t think the CPI, or any instrument that measures or evaluates consumer purchases, takes this into account, I think prices are worse than they appear. Since a lot of people probably end up buying more units of a particular product, rather than paying a higher price per unit, to compensate for this.

    I can totally see someone looking at my recent grocery buying habits and, if they’re inclined to cherry pick and spin things, saying, “Hey, look at this guy. He isn’t paying more for paper towels, he’s spending as much as he did per package a year ago. In fact, things are so great he seems to be buying twice as much now. It must be to clean up after all the hard partying he’s regularly doing to celebrate our glorious three-year-long economic recovery. All hail Obama’s Three Year Recovery! May it bring us as much affluence and wealth when it reaches it its forth year as it does now!”

    Comment by Thulsa Doom — March 1, 2012 @ 10:13 pm - March 1, 2012

  18. Hi ILC,
    I looked at the 120 month commodity price index. As I said in a previous post, there are a number of interpretations. One consistent with the data is that we are where we were, just before the bottom fell out of the world economy in 2008. Which is strange, given your underlying monetary inflation idea. It is also strange given the fact that it fell over the last 6+ months. Again inconsistent with your position. Volatility. Yes; I think you have a valid point there. However, I would have expected that the 2010-early 2011 rise in commodity prices you trumpet as evidence of inflationary pressures would have continued in the face of all the excess liquidity you believe is out there. It didn’t. One has to start considering the possibility that the volatility argument isn’t going to pull its weight anymore. After all, at what point would you be willing to give up the notion, if commodity prices slacken again and fall? In any case, if you wish me to grant that claim, you would also need to grant it going the other way–to whit, every time prices rise, rather than proclaim that the inflationary spiral is here, it might be advisable to hold off, and see what happens over time. You may be right, ILC; but the speed with which you embrace your story neglects other possible interpretations.

    Another story consistent with the long term data is that we have seen a change brought about by the power of emerging markets (e.g., China, India, etc) and their impact on demand, against some fairly inflexible supply constraints. You do not like that story; I know. We agree to disagree.

    Comment by Cas — March 1, 2012 @ 11:51 pm - March 1, 2012

  19. Or in other words, Cas was wrong and is now spinning in the face of evidence to the contrary of its predetermined beliefs.

    Here’s a thought for you, Cas; if prices are falling, as you claimed they were in your FIRST post, why are they the same as they were in 2008, which is what you claimed in your SECOND post?

    The reason why is pretty obvious. Debasement of the currency has pushed prices up, meaning that a dollar buys less now of actual, meaningful, useful product or commodity than it did in 2008.

    For delusionists like yourself and Krugman, to acknowledge that your strategy of blindly printing and trying to hand out money succeeds in little more than making matters worse is beyond your mental and ideological capabilities, although history has proven again and again, from the Continental dollar through the assignat to Argentina and Zimbabwe, that the only thing mass printing of money does is to destroy an economy.

    Comment by North Dallas Thirty — March 2, 2012 @ 2:27 am - March 2, 2012

  20. It loots (on behalf of the one printing the money) – and thus destroys (for everyone else) – the real value of savings and capital.

    When savings have declining (or absent) real purchasing power, so does credit. Obama likes to talk about how important credit supposedly is.

    When capital has declining (or absent) real purchasing power, capital-dependent enterprises can’t grow. Production struggles. As the situation worsens, they even become unable to function – so production declines.

    Thus, the greatest unemployment goes in the end with the greatest measured consumer price inflation. Chartalists, neo-Keynesians and other Phillips Curve believers say it can’t happen. Oh, yes it can.

    Comment by ILoveCapitalism — March 2, 2012 @ 3:43 am - March 2, 2012

  21. strange given the fact that it fell over the last 6+ months

    Nope. Trends advance and pull back, advance and pull back, in waves. You spot the trend visually by seeing a pattern of “higher highs” and “higher lows”, and mathematically by regression. Now look at the chart again. Actually, let’s go to the 30-year, that makes it clearest:http://www.indexmundi.com/commodities/?commodity=agricultural-raw-materials-price-index&months=360

    The 2001/2009 lows (which are pretty close – virtually the same) are above the 1984 highs. In other words, the trend found a new (higher) floor, therefore it is an uptrend. Also note the new all-time high, sticking way out there, that happened less than a year ago. Another sign of uptrend. Finally, the present “low” is in fact quite high; still slightly above the 1995 high, well above the 2008, and way above the 2009 low. And the little upward kink at the very end of the chart means it is not necessarily headed any lower; it may have already reversed upside again.

    Those are the visual clues to the mathematical fact: I guarantee you that if you fit a regression line, it would have an upward slope.

    It would take a breakdown below the 2008 high, and probably below the 2001/2009 floor as well, to unequivocally break the trend. It won’t happen. Not while world CB balance sheets are 3 times what they were 5 years ago, and 6 or more times what they were 20 years ago.

    Comment by ILoveCapitalism — March 2, 2012 @ 4:00 am - March 2, 2012

  22. P.S. For those inclined to speculation: it implies that ag prices are kind of a bargain despite recent increases. “Buy low, sell high.” Ag prices got a bit low-ish, UNLESS you think the whole long-term uptrend is about to be invalidated – and I just mentioned why I don’t think it.

    Comment by ILoveCapitalism — March 2, 2012 @ 4:05 am - March 2, 2012

  23. No, Cas, I’m a pretty lazy shopper and have found a nice boring diet that keeps me fit and have been sticking to it pretty faithfully for the past two years, with my purchases at Trader Joe’s little changed since January 2010.

    Comment by B. Daniel Blatt — March 2, 2012 @ 4:46 am - March 2, 2012

  24. How timely: Fed Finds Climbing Costs Hit Shoppers

    Many manufacturers are passing along higher input costs to their customers, a sign that rising prices for wheat, cotton, iron, and other commodities could increasingly reach consumers in coming months, according to the Federal Reserve’s beige book survey.

    The report, a summary of economic conditions across the central bank’s 12 regional districts, said manufacturers “in a number of districts reported having greater ability” to pass through higher costs. “Retailers in some districts mentioned they had implemented price increases or were anticipating such action in the next few months,” the Fed said.

    Comment by ILoveCapitalism — March 2, 2012 @ 11:40 pm - March 2, 2012

  25. Hi ILC,
    Sorry sport. But if demand rises, whilst supply does not keep up, then unfortunately, prices rise. That is a story consistent with the evidence. I really do not understand your unwillingness to consider that idea (as is also the case with NDT). You might want to check what has been happening in the world, demand wise over the last thirty years…

    Comment by Cas — March 4, 2012 @ 2:04 am - March 4, 2012

  26. [...] Joy reminded me, tend to do most of the grocery shopping.  They know, what reader ChrisH and I have observed, the cost of groceries has increased significantly over the past [...]

    Pingback by GayPatriot » Contraception kerfuffle to distract us from higher grocery bills? — March 5, 2012 @ 4:48 am - March 5, 2012

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