There is constant chatter in the news media and by economists about the future direction of consumer prices. The Consumer Price Index (CPI) is the widely-used gauge in the U.S. for what we pay, and how much inflation (rising prices) or disinflation (rising but at a declining rate) or deflation (falling prices). We decided to look back at the last four years and get a sense of what is happening with prices. And, like so many investment discussions these days, our conclusions are not uniform. In the case of consumer prices, we are having inflation, disinflation depending on which major component of the CPI you watch. Conclusion: just as the broad stock market can have many underlying sub-trends within it, so too can that be the case for consumer prices. “Flation” – it is everywhere and of all three types in today’s consumer world.

The CPI represents all goods and services purchased for consumption by the reference population (i.e. those who complete the monthly survey). Major groups and examples of categories in each shown below, with our assessment of their “flation” trend since late 2010.

 

Source: Ycharts.com 2014

INFLATION

  • EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories)
  • MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
  • FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
  • HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)

DEFLATION

  • APPAREL (men's shirts and sweaters, women's dresses, jewelry)
  • TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)

DISINFLATION

  • RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
  • OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

(c) Sungarden Investment Research

www.sungardenresearch.com

 

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