'flation

For this edition of the short squeeze I wanted to discuss a chart I recently stumbled upon from the Bureau of Labor Statistics. I think it is a wonderful graphical representation of what many Americans have been dealing with recently.  

Since the financial crisis of 2007/2008 the Federal Reserve has been able to continue its low interest rate policy and money printing due to the fact that “inflation” has been extremely subdued. As Mary often likes to say in our portfolio review meetings with clients “I wonder if these people at the Federal Reserve shop for their own groceries because I know every time I go to Publix a gallon of milk is more expensive than the last time I was there!”

If you take a moment and view the graphic from the Bureau of Labor Statistics which covers the time period from 2005-2014, what you will find is that we have had inflation in the things that we NEED (such as tuition costs, child care, health care, good, etc.). At the same time we have experienced deflation in the things that we WANT (clothing, cellphones, toys, computers, etc.)

When you combine the two you get subdued OVERALL inflation. This is great if you want to keep upgrading your iPhone every two years but it’s bad if you have to shop for groceries or need health insurance.  

Another reason inflation had been so subdued is that for the average American wage growth has been stagnant since the Crisis of 2008, in fact, on an inflation-adjusted basis, wages peaked in 1973 (over 40 years ago) aside from brief lapses such as the late 1990s. With inflation in the things average Americans need and stagnant wage growth a larger percentage of their take home pay is being allocated to necessities with less monies available for discretionary spending. 

Until next time. 

—Brett C. Hixon, CFP®

The information contained in this report does not purport to be a complete description of the developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee the foregoing material is accurate or complete. Any opinions are those of Brett C. Hixon and not necessarily those of RJFS or Raymond James.