Working Americans are not Earning Enough...
...to Keep Up With the Rising Cost of Living
The average hourly wage in America has gone up about 45 percent since January 1, 2000, a pace much slower than the over 84 percent increase in the cost of basic essential needs.
Each month, the U.S. government tells its citizens how much prices have risen or fallen during the previous month and for the past twelve months. The Consumer Price Index (CPI) that they use contains data collected from spending surveys given by the U.S. Bureau of Labor Statistics. The basket of goods contains prices of necessities and discretionary spending items. It is not a cost-of-living index, but a consumer spending index.
As we have been saying for some time, a key problem with using the CPI to track the rising cost of living is that the basket of goods is represented is periodically altered. The BLS adjusts the weighting of the components, and also smooths the data based on seasonal patterns. Such tinkering usually results in an understatement of the inflation rate. In our opinion, it creates an unreliable, misleading cost-of-living index.
For our newer readers, we have created a simpler index for tracking the price changes of basic, essential needs that tend to flow through the economy and touch everybody's wallets. The Guild Basic Needs Index™
(GBNI) measures the changing prices of components in four essential living expenditures: food, clothing, shelter, and energy (used for cooking, heating, and transportation). The categories and components, and their values within the GBNI, are fixed. There is no seasonal adjusting, smoothing, or replacing of components.
The data will be published twice a month in this letter, and we offer the accompanying charts that compare the GBNI to the CPI data. As you can see, the prices of basic, essential needs are much higher (and more volatile) than the smoothed, manipulated CPI data since 2000.
The bottom line is that Americans' standard of living is caught in a vice between rising prices and stagnant wages. It is incumbent on savers and investors to protect themselves from the squeeze play.
Prices of basic needs are up over 84% since January 2000; neither CPI nor wages have kept pace.
Track the price of basic needs info
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