Is your grocery bill higher than the 3.5% inflation rate the government is reporting?
Inflation data for March came in less than a week ago, with the U.S. Bureau of Labor Statistics reporting that from march of 2023 to today, inflation rose a mere 3.5%.
I don’t know about you, but I can pretty confidently say every grocery item I buy is up double digits, so is gas, so are property taxes, so is fast food, and so on…
Keep in mind, I have 7 children. So I am especially sensitive to those high grocery prices.
At Target, two years ago a banana cost 19 cents each. Today that very same banana costs 29 cents. That, ladies and gentlemen, is a 52% price increase in just a couple of years.
That’s a pretty basic good right? Yet it’s far outpacing inflation.
So what’s wrong here?
What if the way the government calculates the consumer price index (which ultimately becomes inflation) has changed?
While there’s no way of knowing if they’ve changed their calculations in recent years, we do know that they have previously… Once in the 1980’s and again in the 1990’s.
So let me tell you a little bit about how the consumer price index (CPI), which measures inflation, looks.
They take a market basket of goods this month that the average American would need to survive and compare it to a market basket of goods from previous time periods. This basket of goods includes food, gas, electricity, vehicles, housing, clothes, medical care, etc.
So we would assume that the items in the basket remain the same each month so that no funny business can take place, right?
Wrong, Uncle Sam had other ideas when they changed the way inflation was calculated in the 90’s.
If a pound of steak gets too expensive in the market basket of goods, then they substitute in a pound of ground beef. Which costs about ⅓ the price of a pound of steak. That way prices don’t look like they’re going up as fast as they are.
But we’re in luck
There’s an organization that still calculates inflation the same way we did back in 1980 and also in 1990. And although the tool is not updated super frequently (the last time was in May of 2023). You’ll still be shocked to see what the old, less corrupt ways pin inflation.
As a reminder, in May of 2023, inflation was 4%.
Here’s what it looked like using 1990’s formula:
And here’s what it looked like using 1980’s formula:
As you can see, in the same month that the government reported 4% in inflation, using the 1990 method logged an inflation of nearly 8%, almost double the current methods CPI calculation.
And if we look at 1980, it’s even higher. Using the 1980’s methodology, inflation came in at over 12%. That’s over 3X higher than our current way of calculating inflation.
So let me ask you this, which do you think is more accurate?
In 2023, were you paying 8% to 12% more for groceries than the year before? I know I was.
That’s why I’m not a fan of the new way CPI and inflation numbers are calculated.
Where this leaves us
According to the government, fuel, electricity, and transportation were the three biggest cost increases driving up inflation this month. And it’s a trend that is likely to continue going forward under the current administration.
Which is why I think energy and gold are still in a good position for the longer term. At least between now and the upcoming presidential election in November.
The results of this November’s election could drastically shift the direction of fuel prices, energy costs, and transportation… But for now, I am betting on (real) inflation being higher for longer and commodities are one of the only vehicles that can consistently benefit in that environment.
— Nate
P.S. We’re only two weeks away from the next 3 Rivers monthly newsletter which gives you a basket of trades each month with the goal of beating what a “typical” portfolio could produce using just 3 trades. So far, we’ve got a perfect track record and I am looking to keep that up in spite of a dicey market. If you’re not on the list to get the next 3 Rivers Portfolio picks, jump in here!
