The government says inflation is 0.50%?

[soupcxan]

How on earth can the gov't claim that inflation over the last 6 months is equal to 0.50% as reflected in the new I-bond rates? Almost everything I'm spending money on has increased in price for the same quantity lately. Gas, travel (plane tickets used to be $250 RT, now they're at least $350), car insurance, education (an MBA from a "good school" is now $75k)...the list goes on. People seem to be distracted by price cuts in plasma TVs, but everything else (the essentials) costs more than it did a year ago. I am making more money than when I started working a year ago but in terms of my purchasing/saving power, I feel like I'm barely staying even. I can only imagine what it's like for a family with kids and their associated expenses.

Even the fed is at 5%, and that's supposed to be a risk-free return, yet we're expected to believe that price inflation is only a tenth of that? I certainly don't see peoples' salaries increasing by +5% per year, yet costs seem to be going up at least that much. Does anyone else agree with me or am I just being cranky? If you're going to call something "inflation-indexed" but it doesn't help you out when all your costs are increasing, whats the point?

The larger question is, do I keep my I-bonds from 2003 that are at 1.1% fixed or cash them in to buy TIPS (or something else entirely?). I don't have a tax-advantaged account to hold TIPS in, unfortunately.

 

[cute fuzzy bunny]

 

[mathjak107]

its easy...if it went up more than that its not in the index....remember its their bat their ball ,their field and they make the rules

 

[Arif]

Inflation being reported at 0.5% if you back out all the nonessentials like oil, housing, milk, home insurance (FL, NOLA).
That like saying, "if you ignore the fact that everyone speaks Spanish in Panama it's just like the US"

 

[mathjak107]

People seem to be distracted by price cuts in plasma TVs, but everything else (the essentials) costs more than it did a year ago" quote


as i pointed out in a previous discussion: that in 1987 i bought a sony xbr tv which was representitive of sonys best of breed in that day and age in tv's.it was 750.00 .today the xbr is 2500.00...although tv's and electronics have come down,the replacement best of breed are even more expensive or about the same as the last generation..its just older technology moves down the food chain and becomes cheaper than the current best.....its like telling a 1986 caddy owner he can buy todays ford taurus and get better performance than his 1986 caddy and a cheaper deal ...but a caddy owner wants a caddy and todays caddy is way more ....my first cd player was 1,000 when it came out,it was state of the art,new technology...today in performance it can be had for 50.00 bucks..but todays equivelent of best of breed in cd players run 3,000-10,000 dollars.........

 

[macdaddy]

Rental demand is really strong, this will lead to rents moving up. I increased rents 10% for my condos and all tenants said they would stay put. This has to show up in the CPI... I don't see how they could get away with throwing housing out.

 

[cute fuzzy bunny]

Unfortunately theres a limit on how far you can push rents.

There arent any "interest only" or "40 year" or "ARM" options on rentals.

When the average joe that rents a place has hit about half of what an average joe makes, thats as far as the rents will push.

This is why we sold my wifes old house rather than rent it. Only $400 a year in prop taxes, low insurance. But we could only get about $1000-1100. $250k selling it. Five years from now, the rents will still be 1100, maybe 1200. Do the math.

 

[macdaddy]

I don't know what starting salaries were like 10 years ago. My friends graduating now start at ~ 45k (all majors, from a good school). The lucky ones pulled in close to 100k their first year (banking, consulting, finance). One friend works as a public school teacher in Texas and made 70k in his second year (45k base + 25k from after school and summer tutoring). In 10 years he'll probably be past 100k. From what he says, it's a pretty easy lifestyle. Maybe these are signs of inflation, maybe not, I am probably too young to know for sure.

 

[mathjak107]

dont forget inflation is what your not getting too....the 6 ounce yogurts ,the smaller cookies,even hershy kisses shrank in weight to the bag,but the prices havent.....when your local government lays off workers do they give you a tax rebate?

 

[cute fuzzy bunny]

Yep, "invisible inflation".

The fed measures how much things cost, but when the size or quality shrinks, they dont seem too eager to jump on the hedonics wagon.

How about when a company farms out its manufacturing and tech support to some 3rd world country and the quality of the product dives, then when its giving you trouble you cant get anyone to fix it and you have to throw it out?

 

[Arif]

How about when a company farms out its manufacturing and tech support to some 3rd world country and the quality of the product dives, then when its giving you trouble you cant get anyone to fix it and you have to throw it out?

Speaking of getting something fix: Our 35" 500lbs TV went out a couple of weeks ago and I had mentioned to my cousin that when I get some time I'll throw it away because it'll cost too much to fix. He gave me a strange look and said it could be repaired for less than $50. Silly me still thinking I live in the US. :

 

[wabmester]

How on earth can the gov't claim that inflation over the last 6 months is equal to 0.50% as reflected in the new I-bond rates?

It's just an artifact of a couple of months when inflation dropped. If you remember, gas prices peaked around September last year and then eased quite a bit for a couple months, so the CPI dropped in November and December, and now we're back to where we were in Oct plus a bit more.

 

[Craig]

Heavily debated topic here ... a bit of faith involved. I'm with mathjak107 ... it is a rigged game. Vote your opinion with your investments ... note the Buffet thread.

 

[wabmester]

it is a rigged game.

Hey, I love a good conspiracy theory as much as the next guy, but the CPI's tail gets wagged a bunch by energy prices, and here's what happened to gas prices during the 6 months in question.

 

[Craig]

wab, I hear you, and understand that folks questioning CPI are sometimes regarded as a bit paranoid.  I empathize that putting together CPI data must be a great theoretical challenge ... I just find it a bit incredible, and a lagging indicator.

But, using your graph, and going to gasbuddy.com ... it appears this data indicates a rise of roughly 40% (23% Canadian) in retail gasoline prices over the last year. 

According to the BLS ( http://www.bls.gov/news.release/cpi.nr0.htm ), the CPI change over March of last year is 3.4% ... April data should be out this week.

Obviously there is a lot more than gas prices affecting the data, but your chart doesn't help to support a low CPI figure, IMHO.

I think those investing outside the U.S., in commodities, and perhaps even non-dollar CD's at EverBank.Com (for example) have good reason for those moves, for at least a portion of their portfolios.  To each his own.

 

[Cut-Throat]

How on earth can the gov't claim that inflation over the last 6 months is equal to 0.50% as reflected in the new I-bond rates? Almost everything I'm spending money on has increased in price for the same quantity lately.

The answer of course is that this is for a 6 month period, comparing to the last period. I-Bonds were paying close to 6% over the last period.

Look at inflation over a 3-5 period to get a more accurate picture.

 

[brewer12345]

The larger question is, do I keep my I-bonds from 2003 that are at 1.1% fixed or cash them in to buy TIPS (or something else entirely?). I don't have a tax-advantaged account to hold TIPS in, unfortunately.

So the fixed portion is 1.1% a year? Not a very good deal in today's market. If it were me, I would plan on cashing in at a suitable point and buying something more attractive.

 

[Cut-Throat]

So the fixed portion is 1.1% a year? Not a very good deal in today's market. If it were me, I would plan on cashing in at a suitable point and buying something more attractive.

And as someone remined me. The interest on I-Bonds is delayed 3 months. So you are probably getting close to 7% until August of this year.

 

[wabmester]

But, using your graph, and going to gasbuddy.com ... it appears this data indicates a rise of roughly 40% (23% Canadian) in retail gasoline prices over the last year. 

According to the BLS ( http://www.bls.gov/news.release/cpi.nr0.htm ), the CPI change over March of last year is 3.4% ... April data should be out this week.

Obviously there is a lot more than gas prices affecting the data, but your chart doesn't help to support a low CPI figure, IMHO.

Good point.   I chose to look at an independent source for gasoline because gas prices are both volatile and it's one of the most heaviliy weighted items in the CPI.   I think only rents have a bigger effect.    For the CPI-U, gas is a bit more than 4% of the index.    So if gas went up by 50% in a year and everything else stayed constant, you should only expect the CPI to go up by 2% for the year.

If gas is a bigger part of your budget, your personal inflation rate would obviously be higher.