Don’t worry inflation isn’t a problem….except

I remember having a conversation with my portfolio manager nearly two years ago about inflation.    I was telling him that despite the official numbers, it seemed to be common knowledge that inflation was running rampant.    He agreed with me that the exclusion of Food and Fuel (the only two things you need to buy) from the CPI made the numbers incredibly misleading, but we had divergent opinions about how serious the problem was.   For my part, it seemed clear that it was taking a big toll on average citizens.

Even though it’s well accepted by nearly everyone I speak with, our “leaders” keep telling us that we’re just out of touch with the economic realities.    Meeting with economic journalists last week, President Bush dismissed several polls that show Americans are down on the economy. He expressed surprise that inflation is one of the stated concerns.

“They cite inflation?” Bush asked, adding that, “I happen to believe the war has clouded a lot of people’s sense of optimism.”

That’s right, Americans are just out of touch and have a clouded “sense of optimism”.    While it’s understandable that Americans might be a little pessimistic due to the planned “generation of warfare” against the “evil doers” (who they are exactly, no one can be sure.),  I think the pessimism comes from a source much closer to home.  The grocery eisle, for example:

According to McClatchy Newspapers– The Bureau of Labor Statistics said in its July inflation report that egg prices are 33.7 percent higher than they were in July 2006. Over the same period, according to the department’s consumer price index, whole milk was up 21.1 percent; fresh chicken 8.4 percent; navel oranges 13.6 percent; apples 8.7 percent. Dried beans were up 11.5 percent, and white bread just missed double-digit growth, rising by 8.8 percent.

These numbers get lost in the broader inflation rate for all goods and services, which measured 2.4 percent for the same 12-month period. Across the economy, rising food prices were offset by falling prices for things bought at the mall: computers, cameras, clothing and shoes.

If you’re in the market for a new flat panel HTDV,  you’re in luck.  If, however, you’re trying to feed your family, fill up your gas tank or simply save for the future you’re probably feeling like stretched to the max.    Add in the recent market, credit, and housing turmoil and it can seem like the sky is falling.   Or maybe that’s just my “clouded optimism” speaking due to the 41 tragic and unnecessary deaths of US soldiers in Iraq this month so far.

Are you feeling the effects of inflation?   What impact is it having on your daily life?   I’d love to hear your comments on this important topic.

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