A Quick Glance At Real World Inflation

Tyler Durden's picture

The Casey Report provides a useful glance at the real inflation currently ravaging items that are actually purchased by Americans, not those captured by the Fed's BLS statistics: "On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October." Of course, the ongoing deflation in items purchases requiring leverage will continue to skew the CPI so far south to make all those who bought 5 Year TIPS yesterday at negative yields end up losing money on the transaction.

Chart of the Week: Inflation in the Real World, by Jake Webber of Casey Report

As is often the case, there is a big difference between what the
government statistics are reporting and what’s going on in the real
world. According to the most recent inflation reading published by the
Bureau of Labor Statistics (BLS), consumer prices grew at an annual rate
of just 1.1% in August.

The government has an incentive to distort CPI numbers, for reasons such
as keeping the cost-of-living adjustment for Social Security payments
low. While there’s no question that you may be able to get a good deal
on a new car or a flat-screen TV today, how often are you really buying
these things? When you look at the real costs of everyday life, prices
have risen sharply over the last year. For simplicity’s sake, consider
the cash market prices on some basic commodities.

On average, our basic food costs have increased by an incredible 48%
over the last year (measured by wheat, corn, oats, and canola prices).
From the price at the pump to heating your stove, energy costs are up
23% on average (heating oil, gasoline, natural gas). A little protein at
dinner is now 39% higher (beef and pork), and your morning cup of
coffee with a little sugar has risen by 36% since last October. 

You probably aren’t buying new linens or shopping for copper piping at
the hardware store every day, but I included these items to show the
inflationary pressures on some other basic materials that will likely
affect consumer prices down the road. 

The jump in gold and silver prices illustrates that it’s not just
supply and demand issues driving the precious metals higher – the
decline in purchasing power of the dollar is also showing up in the
price of physical goods. It is because stashing wheat and cotton in the
garage is an impractical way to protect purchasing power that
investors are increasingly looking to protect themselves with the
monetary metals – a trend that is now very much in motion.

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johngaltfla's picture

Shhhhh. That's not a hedonically approved chart. No fair.

The BS, er, BLS data is what is going to burn every single sucker that bought those TIPS yesterday at a negative yield. Best sucker bet in the known universe.

Because when the facts come clean, those TIPS will yield no more than 0.10% to the "investors" who proclaimed inflation. It is not facts which determine CPI-U, it is FEELINGS and OPINIONS. That's why TIPS are bullshit investments.

dlmaniac's picture


Would not recommend TIPS to my worst enemy.

i-dog's picture

The BLS should be hit with a class action suit for FRAUD!! The CPI statistics are relied upon by many segments of the community for important decisions.

Mentaliusanything's picture

so that ends the Deflation/ Inflation argument - I'm a guessing.

Andrew G's picture

Actually, the official CPI takes into account that most Americans are masochist due to being complicit in their government and owners to screw them up every single orifice. Therefore they must get some pleasure out of it too, which should naturally reflect in the CPI.

Lionhead's picture

What about the 2032's with 3.375 coupon purchased at original issue slightly below par now priced @$141.50?  Timing is everything johngaltfla; perceiving value is the art of investing.

Please give us what you perceive as underpriced in the market place. Thank you.


johngaltfla's picture

Hmmm, currently or in the past? The all time winner was Swiss Government Bonds in 2007.

briwerk's picture

Hmm, that is all commodities.  Give out enough free money to specs and they pump up commodity prices.  Does this equal inflation?


What about job income, are we seeing higher wages yet?  If not, higher commodities are just going to squeeze those making the same (or less, more likely) than they were 5 years ago.  Higher commodities in a dismal job market does not seem to automatically lead to inflation.


But nice work, Fed.  Want to do lunch?  It's free, right?


EscapeKey's picture

That's the usual response I get on reddit whenever I point out Gold is simply tracking the price development of all commodities; "THEY'RE ALL BUBBLES". Yeah, whatever.

traderjoe's picture

Escape, did you check out the pics of your Avatar on Maxim Russia? Yikes - she's either been working out or the airbrush worked well. Hot stuff...


You can find the pics elsewhere, but here's a little video...

EscapeKey's picture

I actually reckon she looks better when she's not trying to look hot. My ex who was also Eastern European, shared this trait - of all the photos I ever took of her the best were the ones in which she didn't "prepare" for the cam...

That video does... erm... work, though.

Ragnarok's picture

The dollar was the bubble.

briwerk's picture

Well, maybe not bubbles (maybe not yet) but it does seem to me to be ARTIFICIAL.

Of course that semantic point may not make a whole hill of beans difference in the big scheme of things.  But I do think jobs are important and that is where true recovery has to begin.


EscapeKey's picture

I don't think it's artificial at all. It's inflation. Pure and simple. Who on earth came up with the crazy idea that you can just print an unlimited amount of money without it having consequences needs his/her head examined.

Actually, thinking about it - Bernanke doesn't need his head examined. He's well aware of the consequences, but he does it anyway. Krugman, however...

VK's picture

There's a huge difference between printing money Zimbabwe style and expanding credit QE style in a system that is choking on credit. What I'd like to see is a 30 year commodities chart rather than a 1 year chart.

EscapeKey's picture

Yes, with QE1 you have a case, but that's no longer the objective of the c/overt monetization.

VK's picture

If the US says they don't need oil imports (15 million barrels or so) and has no need to borrow externally and has no reason to trade for goods and services then you'll see Benny inflate to Weimar. Weimar Germany and Zimbabwe and recently Argentina had some crucial similarities, they were isolated from the bond market and thus could print at will. How will the US pay for their oil needs? Will they trade their so called gold for oil? Will they forcefully import oil from Canada/ Mexico through an invasion? Deflation is preferable for the elites. The game can last a lot longer and it is very favorable for TPTB as they have transferred trillions of dollars to themselves, NOT main street. The looting will proceed via asset deflation and wages for the middle class will be decimated. 

atomicwasted's picture

Part of the endgame for the feds is invasion of one or both of Mexico and Canada.  It gives the generals a land war they can throw unemployed cannon fodder at, as well as a plausible cover for getting out of losing wars in Iraq and Afghanistan.  Maybe this time the federal government can conquer Canada, but unfortunately for them Ottawa seems to be to the US armed forces (and Brits before them) as Moscow was to Napoleon and Hitler.

EscapeKey's picture

I disagree. I think inflation is infinitely preferential to the elite.

Deflation means a large amount of people will default on their debts, which the elite then won't get to collect on. This will translate into failing banks and businesses, most of whom are owned by the elite through bonds and equities, which translates into haircuts or even potentially complete losses. Furthermore, assuming static wages, the middle class with savings will get an increasing amount of purchasing power.

Inflation means since the elite have access to the newly minted Dollar bills before anyone else, they get a fraction more purchasing power than the rest of the population, they get to collect on debts, AND the purchasing power of the middle classes is transferred away from them.

uraniuman's picture

Corn prices have doubled since August - I suspect - no, I know there are reasons besides inflation for this. Supply and demand still works.

EscapeKey's picture

Granted, it's not the ONLY reason, but when ALL commodities rise together the argument for inflation is definitely there.

VK's picture

The DOW Jones UBS commodity index peaked at near 240 in 2008, it's trading at 147 as of today, same as it was in 2004. It'll go down even more as deflationary forces take hold once QE2 is announced and the biggest sell the news event in the history of world finance takes place.

-Michelle-'s picture

That looks a lot more in line with the prices at the grocer.  And it also is a reminder that we really need to stock our deep freezer this weekend.

Agent P's picture

I sort of agree with you.  Prices on dry goods with high commodity inputs (bread, cereals, pasta, etc.) don't seem to be climbing nearly as much (if at all) as the underlying commodities...protein however is another story.  For example, frozen bag of chicken breasts at Wallyworld normally run $6.48 to $6.98...I paid $9.48 on Sunday.

GittyUP's picture

Its so funny how everyone just goes along with whatever the article says without questioning the point of the article.  Consumers don't buy raw commodities.  They do buy the finished prodcut though.  Its entirely possible even likely that the higher input costs are being absorbed by the producers and also off set by cost cutting and overhead reduction.  This would result in the same price for consumers as a year ago even though inputs are up 48%.  Raw inputs only make up a small % of the retail price usually anyway.  

The way to measure this is in retail price changes not raw inputs.  This has to be one of the most misleading articles I have read on ZH.  It amazes me how no body else has brought this up but instead responded with some witty sheep mentality response.  Question the Questioners people! 

faustian bargain's picture

Hm, narrowing profit margins for producers. That sounds bullish.

Just because dollar price increases don't translate immediately to the consumer doesn't mean they are not affecting the economy. And one way or the other, we'll all eventually pay for it. The only ones who won't, are the ones with the first access to the free money being injected by the Fed. The higher up the dollar access chain you are, the less you gotta worry about your cost of living increasing and standard of living decreasing.

Until, of course, the dollar becomes worthless.

Karl Yentz's picture

"Benny and the Jets" are tell'n ya they be targeting 2.0% core... Get the yield on the 5yr over divi's of the SP500 or unleaded nationwide over $3/gal and I get beared up. However, with niether the case... No can do!

With this in mind...Long tgt remains 1311-27ish Q1 or 2 of next year!

Seems pretty simple to me.

tmosley's picture

Hedonics, Tyler.  When you can't afford wheat anymore, you're supposed to eat dirt, and the dirt costs the same as the wheat used to, so everything is fine.

EscapeKey's picture

I think you mean 'substitition'. But yeah, you're right. The idea that you'll just swap decent, healthy groceries like chicken breast for cheap, nasty sausages because they're cheaper is absolutely ridiculous.


tmosley's picture

Whoops, you're right, my bad.  

Thanks for the correction.

MrSteve's picture

White hots, those precooked bratworst with veal and pork and milk solids are usually more expensive than chicken, so choose your sausage more carefully in the future and you can upgrade your opinion of "sausage".

MeTarzanUjane's picture

Tyler made special efforts to enlighten readers with the inflation argument 2 years ago.

The point being, the banks are sitting on a shitload of assets (MBS, CMBS). They want to sell at a profit and their friends at the Fed can make that happen.

If the traditional investment classes are in complete turmoil (equities) and the bank assets look cheap (everything is relative during hyperinflation) then people will choose the path of least resistance.

Is it time to renew your Realtors license? Or time to start a cable show that is a hybrid of Flip-my-House and Survivor?

traderjoe's picture

Too bad they didn't include health care and college tuition. 

midtowng's picture

Exactly what I was thinking.

Plus taxes and you have a more complete look at real inflation.

optimator's picture

I hope the Banksters can afford the increase in those prices.  They  should have enough money left over to pay those property taxes on Lonk Gialant.  Worse comes to worse they can sell the Bently leaving the wife with the Mercedes and BMW.  Their answer is the Flat Tax, making them pay no more than you for everything they buy. 

Caviar Emptor's picture

Biflation (as if this were news):

-Inflating real cost inputs 

-Deflating real assets (incl incomes, housing)

Just check the CPI-PPI spread. Today's earnings showed ailing coporate margins in every developed economy. Take a look at Iceland for a glimpse of how bad biflation can get: 40% CPI, deflating incomes and housing

cat2's picture

That's the QE2 banker tax.

AndrewJackson's picture

Don't you guys know, commodities are volatile. That is why we have thrown them out of the index which is now only made up of housing and ipads.

Hugh_Jorgan's picture

C'mon if you stack the BS high enough... 2+2=5, 2+2=5, 2+2=5.

Ok I think I've got it, now.

Duck's picture

"For simplicity’s sake, consider the cash market prices on some basic commodities."


I don't buy commodity wheat, I buy bread and shredded wheat at the grocery store.  I haven't seen prices rise anything like this at my store.

(Whether they get passed on eventually will depend on whether they keep going up in the future).

Assetman's picture

You must really be fooled by the change in packaging sizes, then.

Per unit costs of finished food goods hasn't increased as much as commodity prices... but the increase is very, very significant in my part of the world.

At least that's what my wife says. :)

minus dog's picture

Assetman for the win...  Retailers and producers, particularly grocers, are taking up slack in a lot of different ways.  Reducing or eliminating coupons, moving to smaller packaging sizes, distributing the costs onto other items as long as they can, or just reducing their own margins on items you were already being charged and arm and a leg for.

But then, I doubt that many posters here really have that much of an idea of how much they're spending on groceries.

Sausagemaker's picture

I do because I'm practically Bob Fuckin' Barker. Here's a sampling of increases I've seen:

  • 1/2 Gal Milk from $1.99 -> $2.59 in 10 days 
  • Parmesan Cheese from $3.49 -> $5.35 in a month
  • Jack Daniels from 86 Proof -> 80 Proof
  • Sausage casings from $22 per 100yds to $39 per 100yds

faustian bargain's picture

Jack Daniels from 86 Proof -> 80 Proof

Wait a minute. GTFO. This is serious. They can raise the price of milk and cheese, but when they start messing with the alcohol...

King_of_simpletons's picture

We do not know how many people were let go in those factories that make bread and shredded wheat ....... We have already entered a negative feedback loop in economic terms.

melachiro's picture

Then you are blind.  I have only seen a $.20-40 rise in bread dependinging on the week but about eight months ago the bagged (cheaper) frosted mini wheats my daughters love rose in price AND dropped 2.5 oz on pkg size.

zaknick's picture

I've got hydrothermal mineralized veins yielding 10oz/ton silver popping out of the earth all around my new hometown. Got some copper in there too at 10%. The equipment to mine it is a Bosch electric hammer and its accesories, a small generator and a payroll amounting to under $2,000 dollars (in local currency). The equipment adds up to about $3,000 with everything included.




Working a gold vein (won't tell you how much that's yielding!) with pneumatic hammers and 185cfm compressor, accumulating me gold for the day after!



Lionhead's picture

Well done zaknick!!  There's no fever like gold fever! ;)  All the paper in the world will never substitute for it...

wisefool's picture

And in other news. The documentary type cable networks are airing wall to wall reality shows about pawn shops, motorcycle builders, and junk pickers in an attempt to convince average Americans that their mundane assets purchased on credit have (or will have) incredible value. So everything is not lost. Inflation is good and normal. Tomatoes may cost $6/lb, but my 3rd generation I-pod will be a treasured antique someday.

These networks used to have documentaries about history, science, politics, culture.