Honey, I Shrunk the Dollar
We have all have heard stories about when a Coke used to cost a nickel and movies were a dime, (or was it 40 cents), But what does that mean to us — times change and we all have more money now. If that Coke or movie still represents the same percentage of your wealth, then what’s the problem? Ah, but it doesn’t. Things are not moving together in a nice straight line. Prices are going up and your dollar is losing value. But how fast is that really happening and when should we worry about it. The short answers are fast and today. To get some idea of how prices change over the course of one year we typically look at the CPI data provided by the US Department of Labor Statistics. This data comes out around the 12th of each month and reflects the previous trailing 12 months. The CPI data is also used as the official US inflation rate.
But when you look closer at the CPI and official inflation rate it becomes evident that this number really doesn’t give you the whole picture — in fact, it gives you a completely distorted picture. The BLS website headlines say, “The CPI for all item unchanged in October with component indexes mixed”. The component indexes mixed are weasel words that are meant to soften the truth. The CPI/inflation rate number is a composite based on a not very transparent formula. In the following chart the items in red are included in the CPI composite. It appears that the real CPI/inflation rate affecting food, shelter, medical care, and most of the things Americans face on a daily basis, was much higher than 1.2%. Price reductions, (mostly due to the pandemic), in the oil and transportation industry made the true inflation rate seem lower that what we experienced. That Coke was in a category where prices went up close to 4% in the preceding year, did your salary?
In both months, the S&P did better than the Dow and the Treasury yields got killed. Precious metals and crypto went to the moon, but that’s only if you bought them the previous year. If you went to buy them today, you would pay that much more with your shrinking dollar. The non-CPI related items in the chart were selected for comparison when considering price changes over a corresponding time. Many other or different things could have been included, but just looking at this chart if we had an extra $1,000 in October 2019, we should have bought Ether, (ETH).
According to Eric von Greyerz https://goldswitzerland.com/gold-manipulation-gold-salvation/
That being said, this article does use the “Greenback” as a measuring tool to help with perspective, even though that tool becomes shorter each day. It is very difficult for us non-professionals to tell the difference between rising costs/inflation and currency devaluation. The number changes depending on what you peg it to. In the end it’s all the same, our dollar buys less now than it did a year ago, and that’s a bad thing. So much for trailing 12 months, the important question now is what do we do with today’s $1,000. If the past year gives a hint it looks like precious metals and crypto.