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Your CPI exposure?
Old 08-15-2012, 10:09 AM   #1
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Your CPI exposure?

This Pimco article PIMCO | Viewpoints - Preparing Portfolios for Inflation has a nice pie chart showing the components of the CPI:



This made me think about our exposure to the CPI:
1) Shelter is fixed for us, only RE taxes increase at a modest rate that is capped in California. So this really reduces our CPI exposure.
2) We probably won't have any Education costs. Communications, is that web access and cable TV? Then we have modest exposure there.
3) Recreation: probably more exposed but this is a discretionary item.
4) Energy: we drive less then the average but will travel (is that recreation?).
5) Medical: maybe more exposed but only modestly for the near future.

Overall for us I think maybe we have a 70% exposure to the CPI. So now all I have to do is stop worrying about this one.
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Old 08-15-2012, 11:01 AM   #2
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I am underexposed on shelter, transportation, education, and apparel; over on recreation and energy. So 59 under to 16 over for now. Medical may come into the over in a while.
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Old 08-15-2012, 11:03 AM   #3
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One way to keep up is to invest at least a portion in assets that generally track CPI. Energy is an example. Something like Magellan Midstream Partners (MMP) can be interesting not only because of involvement in energy but also because its contracts include an inflation adjustment. If the CPI rises, MMP's income adjusts upward, and you collect dividends to match. MMP currently yields almost 5%.
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Old 08-15-2012, 11:11 AM   #4
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From that chart I would be about 35%, being energy, food and medical. Energy and food are extremely volatile. Maybe there is some overlaps, does gasoline fall under energy or transportation, does shelter include utility bills, maintenance/insurance or is it just mortgage/rent
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Old 08-15-2012, 11:24 AM   #5
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I currently have very high exposure to shelter inflation since I rent in an area with high rents and annual rent increases that generally exceed CPI. But I have little exposure to energy, transportation, education, and medical care.
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Old 08-15-2012, 11:27 AM   #6
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Originally Posted by rbmrtn View Post
From that chart I would be about 35%, being energy, food and medical. Energy and food are extremely volatile. Maybe there is some overlaps, does gasoline fall under energy or transportation, does shelter include utility bills, maintenance/insurance or is it just mortgage/rent
I would guess shelter includes maintenance/insurance but not heating & AC because the chart says ex-energy. I suppose that water, garbage are in shelter too.
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Old 08-15-2012, 11:36 AM   #7
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Originally Posted by Lsbcal View Post
I would guess shelter includes maintenance/insurance but not heating & AC because the chart says ex-energy. I suppose that water, garbage are in shelter too.
When CPI measures housing costs, they look at rents and (owner) imputed rents. Maintenance is included in the price of the regular or imputed rent.
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Old 08-15-2012, 12:18 PM   #8
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Wouldn't it make more sense to breakdown one's own spending into the same categories and use the CPI for each component to measure "CPI-P" - personal CPI?
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Old 08-15-2012, 01:23 PM   #9
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Wouldn't it make more sense to breakdown one's own spending into the same categories and use the CPI for each component to measure "CPI-P" - personal CPI?
Now that you mention it, maybe my calculation is stupid. The food + energy is a prime contributor to Fed calculations. Maybe shelter doesn't move that much. So I suppose I cannot just prorate the CPI-U by the exposure to components. Hmmm.
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Old 08-15-2012, 01:25 PM   #10
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Quote:
Originally Posted by MichaelB View Post
Wouldn't it make more sense to breakdown one's own spending into the same categories and use the CPI for each component to measure "CPI-P" - personal CPI?
+1

Everyone has around 100% of their consumer expenses covered somewhere in CPI. It is just a matter of where you spend the money.

For us personally, our food expenditures are closer to 25% of our consumer expenses, and shelter is closer to 15-20% (ex energy) (since we own the home and only repairs/maintenance/services/taxes/insurance are ongoing expenses).
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Old 08-15-2012, 04:05 PM   #11
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For what it's Worth:

There is an experimental CPI measure that tracks a different basket of goods weighted towards what seniors purchase. The index is called CPI-S and has shown a larger increase every year compared to other more broadly defined measures of CPI. Things like Medical expenses get weighted more heavily as seniors tend to be bigger consumers of medical related things.

If you google it, you can read a few blogs about it.

The bottom line though is that can expect your expenses in retirement to (probably) outpace (CPI) inflation.
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Old 08-15-2012, 04:53 PM   #12
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I looked at the pie chart and the slices are generally within my personal range. It appears for me however, that as long as CPI stays relatively tame I am increasing disposable income through my cola pension. This past year my after tax income increased by $100 a month from the cola, but my expenses are up at most $25 a month and I have had no conscious change of spending behaviors.
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