Inflation, as reported in February’s Consumer Price Index (CPI), rose 0.2% for the month, and 2.2% for the year; core-cpi, excluding the volatile food and energy components, increased 1.8%. Conventional wisdom maintains that when the economy exhibits sustained moderate growth accompanied by full-employment, inflation tendencies may be forthcoming. However, February’s CPI report paints a contrasting picture of modest near-term inflation and stagnant wage growth. The news tilted interest rates lower, and bond prices rallied on the news.
Food, shelter, and energy are three significant components watched closely by economists, business leaders, analysts, and investment professionals. Last month, these indicators saw price changes of 0.0%, 0.2%, and 0.1%, respectively, and 12-month increases of 1.4%, 3.1%, and 7.7% (last year’s energy spike appears transitory, stemming from the ‘14 oil and gas bust).
The Federal Reserve has set 2% as its inflation target, yet nearly nine years into this expansion core-cpi remains at 1.8%. Low inflation accompanied by economic growth is a beautiful thing. It enables consumers to purchase goods and services at reasonable price points. When prices are stable, and personal asset values are appreciating, it can be a win-win situation for everyone. Is that all there is to it? Not exactly. Somehow, there are pockets of inflation percolating in this ideal environment. In the chart below I list six pockets of inflation that are irritating to working class families. In one year egg prices have risen over 10%; car insurance and home repairs are up nearly 10%; the increased cost of moving and storage, citrus fruits, and leased vehicles is exceeding economic and personal income growth. I find it disturbing that each of these costs was up in February at double-digit annualized rates.
William “Chip” Corley is a professional Money Manager with 1DB.com. He is the author of Financial Fitness: The Journey from Wall Street to Badwater 135. amzn.to/2wVSZcX