Debbie Nelson



There are many economic indicators that are not widely followed or understood by many, but inflation is a topic about which almost everyone has an opinion. And why not? Inflation impacts every single one of us in our daily lives. Recently, inflation flared to levels we have not seen since the early 1980s, which has increased our sensitivity to the topic.

There are a multitude of ways we try to measure inflation. Common measures include the Consumer Price Index (CPI), the Producer Price Index (PPI) and the Fed’s currently preferred measure, the Personal Consumption Expenditures Index (PCE). In each of these measures, we look at a “headline” number, which encompasses price movements across the spectrum of consumer spending, and a “core” number, which removes some of the more volatile components like food and energy. It isn’t that we don’t spend money on those items, but instead, prices within food and energy can change often by material amounts. Taking out the more volatile factors smooths the data and allows the Fed to focus on more stable underlying inflation trends as they consider actions needed with monetary policy.

Source: Strategas, BLS, Haver.

The broad nature of the inflation data inevitably means the index can be influenced by the prices of items we rarely buy. Within the current data, goods disinflation, items like flat-screen TVs, is back with prices falling, but we don’t buy flat-screen TVs every month. Hence, for many individuals and businesses, the personal rate of inflation one feels can be markedly different than the broad government data. As I travel and make presentations, my audiences are clear in their sense of inflation being higher than official statistics. And they are not wrong. For example, we know wages have increased differently across the income spectrum. As we re-opened the economy during the pandemic, wage gains in the bottom half of wage earners were much higher than in the top half. So, businesses with a higher proportion of their labor force on the lower end, like restaurants, have seen their margins impacted to a higher degree.

One of our key economic data providers, Strategas, has attempted to provide additional insight into this phenomenon by creating their “Common Man CPI,” which measures prices on items where we do spend money and compares that to overall wages as measured by the Employment Cost Index (ECI). Is anyone surprised to see the data reveal price levels that exceed wage gains? Intuitively, we know this. And “lower inflation” does not mean lower prices, only that prices are going up more slowly. This picture of aggregate inflation outpacing aggregate wage gains helps explain why consumer and business sentiment remains depressed even as the economy continues to grow and unemployment remains below 4%. Since January 2020, CPI data reveals we have lost 1/5 of our spending power. The actual number for many of us is even higher than that.

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Article written by:  
Steve M. Wyett, CFA
Chief Investment Strategist | Public Speaker | Market Analyst
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