Consumer Price Index
Inflation. It’s in all the headlines and investors are on edge.
Recently, Federal Reserve Chair Jerome Powell testified before congress that concerns regarding inflation were overstated. That’s partially correct, as the Consumer Price Index (CPI) remains below the Fed’s 2% target.
But it’s not the whole story. In fact, when has CPI ever told the complete story? For the ordinary American, places such as the grocery store are the true barometer and battleground of living costs.
For the standard consumer, there is a significant number of price increases that are affecting everyday lives, including food, energy bills, and vehicle purchases. Congress may be satisfied with a CPI rise of 1.4%, but skirting inflation is not a long-term investment strategy. Ask any supermarket shopper if prices have gone up more than 2% and you'll get an earful. Ask your neighbor about their out-of-pocket expenses for medical care being up by 2.7% and you’ll be regaled with the tragedy that is the American healthcare system. Congress may say that “prices remain particularly soft”, but the cost of living is anything but.
Think of all the purchases for the average family: healthcare, TVs, cell phones, those must-have sneakers, internet and entertainment services. These are just a few of the everyday items that are experiencing significant rises in cost. Such easily-overlooked purchases are adding up to a diminishment in that family’s purchasing power.
At the end of the day, it’s not about CPI. It’s the things that we spend the most money on that can hurt us the most financially. Is your wealth strategically positioned to weather them?
If you think your money is safe earning less than 1% in banks and government bonds, think again. As an investor, if you have not factored in the true cost of inflation in your long-term strategy, you may find yourself losing financial ground with every passing day.
Not losing money does not equal financial security. In fact, the absolute minimum goal of investing would be to not lose money. Some might think that security equals a bank account with a certain amount of savings, but if those savings are earning zero interest, you’re not growing or saving. You’re losing money and buying power.
Take the CPI with a grain of salt. For example, housing costs in the CPI have gone up 1.7%, a small number. That’s not taking into account that due to the pandemic, residents are fleeing large cities and moving out of town, causing the housing markets of more remote areas to go up 10-20%, while the housing markets of cities like NYC have gone down. If you’re trying to leave the big city, the CPI is not your investment ally.
For the typical consumer, it’s the “grocery store index” that gives a more complete picture of the average financial outlook. The CPI is a symptom, not a summation.
What are your goals? Regardless of net worth, it is imperative that the conservatives investor reevaluates their investment strategy, or risk losing buying power - the real measure of what your money can do.
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