Innovative Advisory Group's Inflation Monitor
Innovative Advisory Group's Inflation Monitor compiles economic data, price data, and trends to determine the extent which inflation or deflation affects the US economy. Typically, the Consumer Price Index (CPI) is used as a measure to calculate inflation in the US. While this might be a good general benchmark, we feel compelled to do our own calculations and comparisons due to the complexities of inflation and the independent nature of how it affects different parts of the economy. This has enabled us to perceive the effects of inflation in the US economy more accurately.
We don't feel that one number, such as the CPI, can properly describe the elaborate nature of the US economy. Each part of the US economy acts independently from the others, and even though all parts of the economy have some relationship to each other, they don't always follow the same path. The effects of inflation do not result in all prices rising at the same time and to the same degree. The Inflation Monitor is meant to analyze and isolate these discrepancies for signs of inflation, deflation, and the degree to which they effect the economy.
Consumer Price Index (CPI)
The CPI is traditionally used as a benchmark to determine the amount of inflation effecting the US economy. However many people have concerns about how the CPI is calculated. Some of these concerns include:
- why does it deviate from what consumers perceive as inflation,
- what it includes or omits,
- what consumer income or expenses, assets or liabilities it is linked to,
- why the methods of determining the CPI have changed a number of times over the past few decades.
Given all of these concerns, how can we improve on the current method of measuring inflation?
How is inflation calculated?
We look to make a determination of whether Inflation exists by assessing publicly available data and putting it through our proprietary algorithms. We have found that trying to aggregate all the metrics of inflation into one integer, the CPI, tends to make the measure less accurate. Inflation is just too complex to put into one number.
It is important to note that there are different types of inflation and they are not always aligned. Some sections of the economy might show signs of inflation, while others might show signs of deflation. Some examples where inflation might show up are: asset prices, commodity prices, wages, housing prices, food prices, exports, energy prices, and monetary inflation due to the devaluation of the US Dollar against other currencies and assets.
The intention of Innovative Advisory Group’s Inflation Monitor is not only to measure the cause of inflation or deflation, but also to measure its effects. These two measures are very different and distinct, and most people confuse them in their own thinking. While we don’t presume to know what people think, we know from experience that people tend to have a myopic view of inflation. We feel it is important for you to understand why these measures (cause and effect) are different and how the existing data can explain current economic conditions. During the period of 2008-2014, many investors thought that there would be massive inflation due to the “excessive printing of US Dollars”. They felt that printing money would automatically lead to inflation or hyper-inflation… However, what if it doesn't? What if the sole act of printing money is not the cause of inflation? What if other factors are more powerful than the tools the Federal Reserve has available to use?
"Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong." - Ayn Rand, Atlas Shrugged
Inflation Monitor Schedule
On a monthly basis we will post a new issue of the Inflation Monitor. This monthly report will show many of the latest and most recent numbers published by the various governmental agencies, non-profit organizations, and third party companies all in one location. While we realize that this may be an imperfect way to measure inflation, it is the best way we know how given the tools available to us.
The Inflation Monitor will change over time as we find newer and better ways to assess inflation and its effects. We have received insightful feedback from a number of astute economists. We certainly appreciate their contributions. If you have suggestions as to how we may improve the Inflation Monitor. Please feel free to contact us with your input.
If you would like to sign up for our email list, so that you can receive the Inflation Monitor on a timely basis, when we publish it, please sign up here to be added to our email list. If you would like to access prior issues on the Inflation Monitor, you can here.
Below we have listed various definitions of terms which we will use frequently in the Inflation Monitor. We think it is important to define these terms since it will provide a better understanding of our methods and measurements. It will also help you refine your understanding of inflation. We will be adding links to these pages as we are able to write them.
Definition of Terms
- US Historical Inflation Rates
- Why you Should Worry About Japan Deflation
- The Inflation Deflation Balancing Act
- Why Does Deflation Scare the Federal Reserve and Economist Alike?
- Are Negative Interest Rates in America's Future
- Inflation - The Secret to Building Wealth in Real Estate
- Deflation - How a Mortgage Can Destroy Your Real Estate Wealth