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US Cost of Living Hits Record, Passing Pre-Crisis High

Published: Thursday, 17 Mar 2011 | 4:09 PM ET
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By: John Melloy
Executive Producer, Fast Money

 One would think that after the worst financial crisis since the Great Depression, Americans could at least catch a break for a while with deflationary forces keeping the cost of living relatively low. That’s not the case.

A special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February, according to data released Thursday, surpassing the old high in July 2008. The Chained Consumer Price Index, released along with the more widely-watched CPI, increased 0.5 percent to 127.4, from 126.8 in January. In July 2008, just as the housing crisis was tightening its grip, the Chained Consumer Price Index hit its previous record of 126.9.

 “The Federal Reserve continues to focus on the rate of change in inflation,” said Peter Bookvar, equity strategist at Miller Tabak. “Sure, it’s moving at a slower pace, but the absolute cost of living is now back at a record high in a country that has seven million less jobs.”

 The regular CPI, which has already been at a record for a while, increased 0.5 percent, the fastest pace in 1-1/2 years. However, the Fed’s preferred measure, CPI excluding food and energy, increased by just 0.2 percent.

 “This speaks to the need for the Fed to include food and energy when they look at inflation rather than regard them as transient costs,” said Stephen Weiss of Short Hills Capital. “Perhaps the best way to look at this is to calculate a moving average over a certain period of time in order to smooth out the peaks and valleys.”

 The so-called core CPI is used by the central bank because food and energy prices throughout history have proven to be volatile. However, one glance over the last two years at a chart of wheat or corn shows they’ve gone in one direction: up. And many traders say Fed Chairman Bernanke’s misplaced easy money policies are to blame.

Over time, the Bureau of Labor Statistics has made changes to the regular CPI that it feels make it a better measure of inflation and closer to a cost of living index. It improved the way it averages out prices for items in the same category (e.g., apples) and also uses the often-criticized method of hedonic regression (if you're curious, you can learn more about that here) to account for increases in product quality.

In 2002, the BLS created this often-overlooked cost of living index in order to account for the kinds of substitutions consumers make when times are tough. It is supposed to be even closer to an actual “cost of living” measure than the regular CPI.

“For example, pork and beef are two separate CPI item categories,” according to the BLS web site. “If the price of pork increases while the price of beef does not, consumers might shift away from pork to beef. The C-CPI-U (Chain Consumer Price Index) is designed to account for this type of consumer substitution between CPI item categories. In this example, the C-CPI-U would rise, but not by as much as an index that was based on fixed purchase patterns.”

Beyond the money

“As the cost of living increases, we are headed toward a bigger problem with the slowing of housing permits,” said JJ Kinahan, chief derivatives strategist at thinkorswim, a division of TD Ameritrade. “As the staples start to cost more, this could lead to a quick slowdown in the auto and technology sectors as an iPad is an easy thing to pass on if you are paying more for your gas and food and need to cut back somewhere.”

To be sure, it’s nearly impossible to get a perfect “cost of living” measure, and the BLS acknowledges this on their web site: “An unconditional cost-of-living index would go further, and take into account changes in non-market factors, such as the environment, crime, and education.”

Still, states will be cutting back services drastically this year at the very same time they are raising taxes in order to close enormous budget deficits and avoid a muni-bond defaults crisis. So while it may be the missing link to a perfect cost of living measure, one can assume that Americans will be paying more for unquantifiable services such as police enforcement and education, but getting them at a lesser quality.

Bottom line: The cost of living for Americans is now above where it was when housing prices were in a bubble, stock prices at a record, unemployment low and consumer confidence was soaring. Something has gotta give.

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John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.
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One of the primary reasons for this is the lack of increase in wages for the average American worker.  I can't think of too many people I know - only one, in fact - that has gotten a raise in the past several years.  This even includes those on Social Security and ex-federal workers who haven't had a cost-of-living raise in at least the past 3 years.

Food, gas housing and corporate profits have steadily been on the rise.  While workers' paychecks have not.  Sad.
Too many Republican policies and ideologies have been allowed to let stand under this administration, I'm almost about to get embarrassed of how this Black president is allowing republicans to continue to run things in this country.  I'm just not getting why he is not raising hell about certain things and why he has let so many things stand that caused public outrage when the Bush administration and republicans implemented them in the first place, enough outrage for so many people to vote him in in the first place BECAUSE of his promise of CHANGE.
I agree with you wholeheartedly, sunnubian!!

All except for one tiny little distinction ... and that is the designation and classification of him being a "Black" president.  I don't really see that the way that most people do!    But, I think it has a lot to do with the way and the reason he does what he does the way he does it.

But .... be that as it may .... my cousin and his wife came down from the country to visit my Dad yesterday.  They still live in the small - still basically segregated - Texas town that my father was born and raised in.  20 years ago, he was elected as the first Black member of the school board down there .. and while there have been 3 or 4 others over the years, he's still the only one on that board today.

Talking about politics and President Obama ... there was a rather spirited discussion on whether the President would be re-elected in 2012.  Me, the cousins, and my sister said yes.  My dad and a cousin-in-law said no.  Their reason being that too many people who voted him in the first time are mad at him now and would not vote for him again for re-election.

On our side, we determined that 1) there wouldn't be a competent enough opponent  to lose to, and 2) while he has lost some previous voters, he's probably picked up others (i.e., fat-cat capitalists and corporation-types who he's still catering to and keeping rich!). 

Of course, we'll have to wait and see which way the ball bounces!! But ... my cousin made a good point when he explained that, as the first Black school board member, the biggest fear of the White folks - both residents and other board members - was that he was going to get in there and try to do everything he did exclusively for the benefit of the Black school children!!  They were more or less just salivating, waiting for him to bring racial politics and divisions into the mix so that they could discredit him, have him kicked out, and not have to deal with "the coloreds" trying to take over anymore. 

Instead of going all "Malcolm X" ... or even "MLK" .... on 'em, though ... he instead started out by making suggestions on improving the entire school system as a whole ... making the schools more advanced, renovating old buildings, bringing in better books and updating teacher qualifications.  In turn ... ALL students got the benefit of a better education system ... but once he was able to calm the fears and gain the trust of the White people who were surely expecting a race riot to occur the first day he sat down in his chair .... that's when he was able to implement his plans to make sure that Black students, especially, got the counseling and advice (and education) they needed to increase their graduation and college admission rates and had the educational tools in place to give them a better chance to succeed.

He says he caught a lot of hell in the beginning by the Black people who thought he was "selling out" since he didn't do an "Al Sharpton impersonation" in the board room and start preaching about the racism and discrimination that existed, both in the town and in the classroom.  But ... with the way he did it, he has been re-elected to the board every election since ... both by White and Black people/parents ... who all feel that their children have benefited from him being a member of the board.

President Obama is a little to Republican-leaning for my tastes, too!!    I don't really like the way he's doing what he's doing, either  ... but ... I figure that it could be 1000-times worse if there actually WERE a full-blown Republican in office right now!!!    We'd be screwed beyond belief if John McCain had won the election!!  So while we may not have everything we want the way we want it ... we've got more and better than we could have.  And we better do whatever we can to keep what little we've got. 'Cause it's better than nothing.  And it could be so, so, soooooo much worse.

Culture Of Lies Colors Our Future Darkly

Here’s something worth saying, a quote from Charles Hugh Smith via Marc Faber: “…the status quo would collapse were systemic fraud and complicity banished. Rather than the acts of evil conspirators, they have become the foundation of the U.S. economy and financial system…”

You will recall how Goldman Sachs wowed the whole world with its dazzling trading.  Day in, day out, the traders at Goldman made money. The firm turned in “perfect” trading quarters, with not a single day showing a loss. Surely, one of the junior traders would have miscalculated at least once? Or a seasoned old pro, after a well-irrigated lunch, take his fat finger and hit the wrong button? Nope. Not once did Goldman’s trading machine err. It was uncanny. Almost unnatural.

If a system works on lies and information hiding the people working the system regard it as NORMAL.  But as time goes by new people are brought in and they slowly become more and more cynical year after year.  Eventually a point comes where the lies are so far out of touch with reality that it cannot work anymore.  This is not the 1950s or the 1980 anymore.  There was never before a world with computers everywhere and instantaneous communications.  The dissemination of lies and other information cannot be controlled as it ever was before.

History is obsolete.

"There was never before a world with computers everywhere and instantaneous communications.  The dissemination of lies and other information cannot be controlled as it ever was before."

I don't know Xum, because now they are buying up the algorithms of search engine or (the actual search engine phrases) phrases from Google, Yahoo, etc., that allow the access to certain information so that they may control where or what you are directed to in the first place.

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