Blowing Up or Blowing Out?

What’s up with inflation?

Source: Wikipedia

Inflation numbers were reported yesterday, and they were pretty tame. In fact, for the past year, core inflation has been running at a little less than 2%. And total inflation is now at the same level. But a lot of folks feel that if prices aren’t rising, their wallets must be shrinking. For them, a dollar today doesn’t go as far as it did a year or so ago. What’s up with that?

The monthly CPI release is an average, a basket of 40,000 items, weighted to try to capture what a typical urban consumer might experience. There are regional sub-indices, as well as indices for individual items or groups. There is a housing component to CPI, for example, that has been growing at a higher rate, even as the price of recreation—TV, pets, sports equipment—has been rising at a lower rate, or even falling.

Source: St. Louis Fed

And our memories are funny. We may remember gas prices at $2.50 / gallon, so $3.20 still seems like inflation, even though if we look it up we find gas prices are lower than they were a year ago. And many people have seen increases in their medical insurance premiums lately—so their paychecks are smaller.

So while inflation looks modest, it still feels higher. But with inflation, as with most financial things, it’s dangerous to trust your feelings.


Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
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