It’s Always a Chain Reaction

Correlation doesn't always mean causation but in the world of consumer goods, housing, and gas, they sure seem to be connected. When one goes up, the others quickly follow.

Over the last 12 months, the Consumer Price Index (CPI) has risen 4.2% - the largest 12-month increase we have seen since 2008.  That means the cost of most consumer goods is increasing.  The Producer Price Index (PPI) also rose in April by .06% - bringing the PPI 12-month increase to 6.2%.  While CPI measures the change in prices paid by consumers, PPI measures price changes from the perspective of the seller. Interestingly, the CPI does NOT include investment items such as real estate (homes), stocks, bonds, and life insurance because these items relate to savings and not day-to-day consumption. In California we know the price of housing has been going through the roof. We also know that the price of gas has risen rapidly and will continue to rise because of the switch to the summer blend of gas.  This rise affects a myriad of other products and services somewhat like a chain reaction. When the price of gas increases, so does the cost of just about everything else in our economy, especially housing.  Investopedia outlines these effects here.  So, let us hope we can start producing more oil and gas again or else we are going to be facing rapid and possibly extreme inflation which is an unseen tax on all of us.

 

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