Earlier this morning, I showed a 20 year chart of inflation, relative to consumer income and purchasing power. It was a surprise to see that since 1985, energy, oil and gasoline didn’t even make the top 3.
I asked Michael Panzner what the same chart would look like over 5 years. He noted "Although earnings have kept pace with reported inflation and the prices of some goods and services over the past five years, the average worker’s purchasing power has lost ground in several key areas."
He was nice enough to generate this:
click for larger graphic
Chart courtesy Michael Panzner, Rabo Securities
This chart is noteworthy for two reasons: First, the impact of energy is inescapable, as its 2 of the top 4 5 areas where consumers have been losing real purchasing power, i.e, the costs of these goods or services are accellerating faster than earnings.
Second, and perhaps most significantly, this chart shows how much CPI understates actual inflation.
Any time you see a fund manager or eoconomist on CNBC discussing how benign inflation is, you can comfortably file that person away as clueless cheerleader.
UPDATE: July 14, 2005 10:28am
Michael Panzner writes:
The original 20-year chart is accurate (which has housing as the second most "inflated" category), but when I rejigged the data to make you that five-year chart, I decided to drop the "alcohol" category and re-sort the list in ascending order to try and make it look a bit tidier.
Unfortunately, between the two steps, I actually ended up dropping the "housing" data, and inadvertently labeled the "alcohol" ratio as "housing". All the other data in the graph is/was correct.
Perhaps the thought of alcoholic beverages muddled my brain…?
Anyway, attached is the new graph [above] (with the "alcohol" category now included) and housing at the end (where it belongs). It was a silly mistake. Sorry.
No harm done –thanks for the fix — and kudos to eagle eyed Tim (The mess that Greenspan made) for the catch