Hey American consumer feeling any poorer?

Purchasing Power of the Consumer Dollar, CUUR0000SA0R, monthly, February, 2003 to March, 2013, baselined at 100 on February, 2003

You should be. Between shrinking wages and low but relentless inflation the wealth of the American consumer has been steadily eroded. From time to time I’ve looked at the consumer price index, or CPI and it’s effects on various investible assets. But some folks find rather abstract metrics such as CPI a tad difficult to get their heads around, so I thought that instead of looking at inflation I’d look at something closely related: purchasing power.

The chart above shows Purchasing Power of the Consumer Dollar (CUUR0000SA0R, black line), measured monthly for the period February, 2003 to March, 2013. For clarity I’ve baselined the index at 100 starting in February, 2003. A few observations: over the past decade, the consumer has seen their purchasing power drop by roughly 21%, and by a little more than 7% since the June, 2009 end of The Great Recession.

That is, of course, assuming the official estimates of inflation are correct. Are they? The Bureau of Labor Statistics (BLS), which calculates and distributes the official inflation, is often accused of understating, either by excluding data they consider to be “too volatile” (e.g., food or energy), or by means of hedonic adjustments. I track inflation using official data, and it seems relatively benign – for now. Of course things look different if you start to break up CPI; something I’ll be doing over the next few weeks.

Meanwhile, some Federal Reserve officials are getting concerned about possible inflation going forward. I am too, as well as all type of systemic risk, which is why I’m still purchasing precious metals, in spite of recent price dips.

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