Guild Basic Needs IndexTM
April 25, 2013
Inflation -- The Dog that
week, Core CPI in the U.S. surprised many market watchers when it only showed a
1.5 percent year-over-year increase through March. An International
Monetary Fund (IMF) report this week likened inflation to the dog that didn't
bark, and asked "Has Inflation Been Muzzled Or Was It Just Sleeping?"
They see economic slack (in employment and industrial capacity) as the key
reason inflation has been kept in check. It is true that there remains
slack in the economy, and the deep 2007-2009 recession has lingering
effects. We also believe that one reason inflation has been kept in check
is that the official inflation measure is only telling the story that officials
believed that higher prices around the globe (especially for basic, essential
needs that have limited supply) would be driven higher. We have been
tracking the prices of many of these components in our Guild Basic Needs
IndexTM (GBNI) in an effort to prove our
that higher inflation is on the horizon is founded on several facts. The
first is that many hundreds of millions of people around the globe are
increasing in their standard of living -- eating more and better, owning more
clothes, upgrading their housing, driving more, cooking more, etc.
Another fact is that in recent years, trillions of dollars in liquidity
injections from governments around the globe have been created. This
liquidity is intended to fight financial crises and deflationary forces from
deleveraging western and Japanese banking systems.
that continued monetary debasement will eventually increase the supply of money
chasing such necessities. Since the year 2000, the prices of certain
food, clothing, shelter, and energy (used for cooking, heating, and
transportation) in the U.S. that are included in our GBNI have risen almost 89
percent. Over the same 13.25 years, the CPI inflation index that tracks a
basket representing Americans' expenditures has only increased about 38.3
percent. We do not keep detailed data on prices in China, India, Brazil,
Russia, and other emerging nations -- but reports published by their
governments support the fact that prices are rising more rapidly in these
countries than in the U.S.
Signs Point to Higher Prices... But Not Right
With a 1.5
percent year-over-year increase, the Federal Reserve still has a green light to
keep the monetary spigots open, and to keep rates low. So while the
Federal Reserve sees inflation and inflation expectations firmly anchored below
their 2.5 percent targets, more liquidity is coming.
continue to track the prices of items that people need every day in our weekly Global Market Commentary, and here. If the markets are going to hear the
inflation dog start barking, we believe our GBNI will pick up the
frequency before the official data rings the inflation alarm bells.
April 04, 2013
More Americans Seek Assistance to Afford Food, Even as Employment Improves
biweekly installment about the rising cost of basic, essential needs, we often
discuss how the standard of living in America is eroding -- hurt by stagnant
incomes and the rising costs of necessities. One effect of this is that
more and more Americans are relying on Federal government assistance to help
them feed their families. An article in last Thursday's (3/28) Wall
Street Journal by Damian Paletta and Caroline Porter discusses that even though
the economy has improved after the 2008 to 2010 recession, enrollment in the
Supplemental Nutrition Assistance Program (SNAP), which is the modern-day
food-stamp program, has stayed high. In 2008 food-stamp recipients
numbered about 28.2 million. While unemployment has fallen from a peak of
10 percent in October 2009 to 7.7 percent today, SNAP participants grow.
Today, enrollment stands at about 47.8 million Americans, costing the
government about 74.6 billion dollars in 2012.
Click to Enlarge
Another Cause -- Government's Generosity
when the Clinton Administration and Congress set in motion the overhaul of the
welfare system -- a process that continues under the current Administration --
more Americans have become eligible. At Washington's behest, many states
are opting to relax the requirements. Now, people with good income and
savings can qualify... and so more are using it.
Typically as economy improves, government programs don't have to help
as many people... Yet the graphs below show that some programs keep
Click to enlarge
Food Prices Climb, the Numbers of People Using Government Assistance to Eat
Will Stay High
Basic Needs IndexTM (GBNI) tracks the
rising costs of certain food, clothing, shelter, and energy components that
people must consume every day. Food components represent 30 percent of
the Guild Basic Needs Index (the other components and
weights are Clothing 10 percent, Shelter 30 percent, and Energy used for
heating, cooking, and transportation 30 percent). In developed countries,
the average person spends 10 to 15 percent of their income on food items.
In the U.S. the percentage is at the low end of that range, but we believe the
percentage is going to grow. The food components that we measure in our
GBNI have risen an average of about 108 percent since January 1,
wages start keeping pace, or unless unemployment falls a lot more, the
government's SNAP is looking like a permanently growing budget item. In
the grand scheme of things, SNAP $75 billion may not be a huge budget item, but
the trend is in place for it to get out of hand. A lethargic economy,
rising food prices, and the government's increased generosity are all driving
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