No Really, You Can’t Afford That
After the past few days’ discussions of whether you can afford things, Stats Canada made the definitive statement, you can’t afford that when it published the monthly Consumer Price Index Numbers for March 2011. Inflation leaped up to 3.3% last month (year over year), up almost 50% from the February rate of 2.2% (year over year). This is the highest the rate has been since September 2008 (you remember before the entire monetary system debacle), so good cause to be concerned.
As you can see without Energy everything is jumping in price in a nasty way. Without Energy in the equation, Inflation is running at 2.4% (year over year), but again that is a 71% jump from last month’s incrase of 1.4%, so this is a big jump relative to what we are used to.
Energy prices increased 12.8% during the 12 months to March, following a 10.6% advance in February. Gasoline prices increased 18.9% in March, following a 15.7% gain in the 12 months to February. Prices for fuel oil and other fuels increased 31.3%, while electricity prices rose 4.3%.
That is a disgusting but believable set of numbers, given gas prices have gone through the roof in the past month or two as well. This jump is now passing through the system and jacking up prices across the board.
The one consolation currently is that the Bank of Canada’s CPI number is actually lower right now 1.7% (year over year), but again that number is up over 90% from last month when the year over year was only 0.9%.
What does all this mean? It might only be a single month bump and things will calm back down next month, but given gas prices continue to rise, I think that is being either naive or grossly optimistic. This could mean a summer of inflation.
Big Table
You can see from the big table exactly which are the culprits this month. This inflation is now causing an even stronger Canadian Dollar too, man that is worrisome.
| Relative importance1 | March 2010 | Feb 2011 | March 2011 | February to March 2011 |
March 2010 to March 2011 |
|
|---|---|---|---|---|---|---|
| Not seasonally adjusted | ||||||
| % | (2002=100) | % change | ||||
| All-items | 100.002 | 115.6 | 118.1 | 119.4 | 1.1 | 3.3 |
| Food | 17.04 | 123.1 | 125.3 | 127.2 | 1.5 | 3.3 |
| Shelter | 26.62 | 121.7 | 124.5 | 124.6 | 0.1 | 2.4 |
| Household operations, furnishings and equipment | 11.10 | 108.3 | 110.1 | 110.4 | 0.3 | 1.9 |
| Clothing and footwear | 5.36 | 93.6 | 89.4 | 94.4 | 5.6 | 0.9 |
| Transportation | 19.88 | 117.1 | 122.6 | 124.8 | 1.8 | 6.6 |
| Health and personal care | 4.73 | 113.5 | 116.0 | 116.4 | 0.3 | 2.6 |
| Recreation, education and reading | 12.20 | 102.5 | 103.8 | 104.9 | 1.1 | 2.3 |
| Alcoholic beverages and tobacco products | 3.07 | 131.5 | 135.0 | 134.8 | -0.1 | 2.5 |
| Special aggregates | ||||||
| Core Consumer Price Index3 | 82.71 | 115.0 | 116.2 | 117.0 | 0.7 | 1.7 |
| All-items excluding energy | 90.62 | 114.1 | 115.8 | 116.8 | 0.9 | 2.4 |
| Energy | 9.38 | 134.5 | 146.3 | 151.7 | 3.7 | 12.8 |
| Gasoline | 4.92 | 147.6 | 164.6 | 175.5 | 6.6 | 18.9 |
| All-items excluding food and energy | 73.57 | 112.1 | 113.7 | 114.4 | 0.6 | 2.1 |
| Goods | 48.78 | 109.0 | 110.8 | 113.0 | 2.0 | 3.7 |
| Services | 51.22 | 122.2 | 125.3 | 125.7 | 0.3 | 2.9 |
You are right that inflation is having a nasty effect on many budgets. I read an article suggesting that because the United States (where I live) is a service economy, inflation is contained. That is BS! I have a gasoline surcharge on many of the services that I am seeing. You can bet that accountants and lawyers will raise their prices so that they can pay for more expensive gasoline. Food prices and other goods will increase due to shipping costs. It will work its way through the entire economy.
I have a feeling that this increase in energy prices will lead to another recession and choke off any recovery. Then I suspect prices will retreat. I would not be a bit surprised if the majority of the price is due to QE2 and speculation just like when oil went to $140.
If gas prices are already this bad, how high do you think they’ll go during the summer when they typically jump up anyway?
It’s crazy the effect that oil prices are having on everything. In economics you learn about the supply side and how shocks like this affect us. Unfortunately we are so dependent on oil that there is nothing we can do in the interim to combat this.
-Ravi Gupta
Thank you for ringing the alarm bell. Investors MUST consider inflation in their portfolio asset allocation or lose the purchasing power of their money.