Preparing For the Upcoming Inflation With Own CPI Index
The US continues to run budget deficits and will most likely continue this for years. Those who own US bonds are not going to be happy about this. In exchange for purchasing the bonds, the goverment will be paying back in dollars that are worth less due to the huge increase in the money supply created to fund bailouts and other spending.
In the video below, author Peter Schiff talks about these problems.
As a result of these things, the dollar will fall in value and investors will stop purchasing goverment bonds or will only purchase goverment bonds that offer a higher yield. The result will be inflation working its way into the marketplace.
Looking at the CPI published by the Bureau of Labor Statistics it measures the price of many different types of items. It isn’t specific about exactly how they are gathered, whether the prices are sale prices or regular prices.
I’ve decided to make my own little index on food related items to measure how much they will be changing.
For smart shoppers, sales prices are probably the prices that will be paid for items. As a result, listing sales prices instead of regular prices seems like the way to go. Regular prices seems useless for people like myself and smart shoppers. Grocery stores frequently have sales items, making the prices easy to find. Regular prices may often be so high that items sit on the shelves with little movement until put on sale. Real estate prices are similiar; the asking price doesn’t necesarily mean it will be the prices someone will pay. Someone could just as easily find a cheaper house and purchase that one. So for the index, I will only list prices that are the best prices or sales prices.
Also there will be different classes of items; sales or marked down items. The marked down items are items that a store markes down because the product is nearing expiration, or because the store wishes to stop selling the item and move in new merchandise. The first one can be indexed while the second can not because the product will no longer be around.
It is possible that sales may not occur every week for a particular item. In such a case, the price will not be listed. Just because an item isn’t on sale every week doesn’t mean that the person isn’t consuming that item or is substituting it for another item. Chicken or rice are great examples of this. When chicken goes on sale, it can be frozen for months at a time until the next sale comes along. Rice can be stored for years.
The index will consist of the following items: eggs, milk, chicken (various cuts), rice, 2-liter of Pepsi or Coke, onions, bananas, bell peppers, celery, romaine lettuce, and spinach. They will be listed out by quantity or oz whenever possible.
The percentage changes in price will be shown for each item and annualized over time.
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