I’m a musician, not an economist, but I know something is up when the Federal Reserve keeps telling us that inflation is tame. Month after month, we get reports that the “core” inflation rate is modest while my first-hand experience tells me otherwise.
The use of the “core” rate is what disturbs me most, as it strips away volatile prices like energy, food and housing. By removing those items, the Fed hopes to get a real picture of the economy, smoothed out to eliminate spikes that could tilt your perspective.
But how accurate is that, when the major expenses facing consumers today, the costs that really impact their lives are exactly the same as those the Fed is leaving out?
Let’s take a look at all three as it affects my own household.
Housing. I live in California, need I say more? If you’re not familiar with California’s reputation for insanely expensive homes and real estate, let me give you a quick lesson. A 1,200 square foot home with 2 bedrooms and 1 bath, in a not-so-nice part of town, on a normal 50 by 150 foot city lot, now sells for at least $600,000. You start to get slightly more for your money as you inch up to the $1.2 million mark, but still don’t get a decent well-scoring public school district. Rents aren’t much cheaper either. Just out of curiosity, I looked into the apartments that were recently built near the Del Mar train station in Pasadena. Small 750-900 square foot studio units were renting for $2,000 and larger 1,600 square foot places were an astounding $3,200 per month!
So, I guess I should consider myself “lucky” that I own a home and pay a mortgage, instead of having to rent at these exorbitant prices. Still, housing is my biggest monthly cost.
Food. There’s no doubt that the cost of food is rising dramatically. Fed statistics released for April 2007 showed an increase of 5.7% in Southern California. The rest of the country isn’t immune. They saw an increase of 3.9% during the same period. On top of it all, food prices are increasing in 2007 at the fastest rate in years. The official numbers don’t tell the whole story either. If you talk to many families, they’ll tell you that they’re seeing an increase in total food bills closer to 25-30%. Food is my second largest monthly outlay.
Energy. Ah, yes…energy. There is no one who has not been affected by the increase in gasoline prices. I’m very lucky that I don’t have a long commute every day to get to work. In most every case I get to work within 30 minutes or less, and my wife’s commute is usually 15 minutes. We don’t put a lot of wear and tear on our cars, and don’t need to fill up our tanks that often. We drive comfortable but modest cars, not SUVs, that get good gas mileage, but still end up paying almost $60 every time we fill up. Granted, we’re fortunate, living in LA and being able to drive so little, but $500 in gasoline makes for a very expensive energy bill. I’m not even going to start to include natural gas and electricity into the equation, but these have also risen dramatically in the last few years.
I’m sure that no matter where you live you feel much the same as I do and feel the effects of rising prices. Wages for most haven’t kept track and more and more people are finding themselves with larger expenses, real “core” expenses not indulgences, the exact same core that the Fed leaves out.
It’s the total opposite of what was happening in 1998 through 2000, when then-Fed chief Greenspan was crying inflation (there was none) and trying to control the large rise in asset prices that was the market. That action resulted in the greatest loss of asset value in history. I’m surprised that no one is speaking out now about what the Fed’s inaction this time around might mean to the average middle-class consumer.
No one likes rising interest rates, but when the word from above keeps touting that all is quiet on the inflation front, and the Everyman finds himself getting deeper and deeper, something is radically amiss.