Income Rises at 1.8%, While Inflation Clocks In At 2.8%?!

Written by Chris Marcus of Arcadia Economics

One of the primary reasons why I left Wall Street in 2012 was because I had started to notice the difference between what gets reported to the public, and what I actually saw going on in the markets.

Certainly as the years have passed, there is a growing awareness, especially by those in the precious metals community, that often the mainstream media does not always give the most accurate assessment of the environment.

The latest example being the comparison between the increase in household income and the increase in the price of goods that people actually buy.

Because while the government data recently has asserted that wages have increased by 1.8%, recent Consumer Price Index figures show that even the government’s numbers show a 2.8% rise in the cost of goods.

The new data, which provide a broad look at U.S. economic well-being, show that median household income increased to $61,372 last year, up 1.8% when adjusted for inflation.

U.S. consumer prices last month notched the heftiest annual growth since the beginning of 2012, a further sign price pressures in the economy are solidifying.

The consumer-price index, which gauges what Americans pay for goods like lettuce and toys and services like haircuts, rose a seasonally adjusted 0.2% in May from the prior month, the Labor Department said Tuesday. Prices rose 2.8% last month from the prior year, the strongest reading since February 2012, when inflation was 2.9%.

Now to be clear, the income data is being claimed to have been adjusted for inflation. So at least as the government is reporting it, incomes grew 1.8%, after factoring in the 2.9% inflation.

Although of course the government numbers have been thoroughly exposed as flawed at best. With many feeling that they are likely even disingenuous in nature, and not intended to give people an accurate picture of what’s really going on.

For a quick refresher on the government BLS data, click on this one, or just consider the following quote of widely respected economist John Williams of Shadow Stats.

Greg Hunter: If it (the inflation rate) was done the way it was done in 1980, it would be close to 10%, the real inflation rate?

John Williams: Yes. It would be.

Of course, if this is the first time you’re hearing about this and it seems almost too ridiculous to be true,  just remember that President Obama once suggested actually altering the inflation formula as a means of deficit-reduction!

In other words, he inadvertently admitted that he wanted to change the numbers from what they were calculated as, specifically to not pay out a properly adjusted inflation income to those on Social Security and fixed income payments.

The budget proposes to use a different measure of inflation, the chained Consumer Price Index (CPI), to adjust benefits in certain programs and key parameters of the tax code (such as the tax brackets, personal exemptions, and standard deductions).  The chained CPI fully takes into account consumers’ ability to substitute between goods in response to changes in relative prices.

So while the exact numbers are subject to debate (although if anyone can disprove any of Williams’ research, I’d sure be fascinated to hear it), what many who only follow the mainstream financial media often miss, is that while the government regularly trots out how much the economy or labor market is growing, what is often not factored in is the context to give the regular person a true picture of what’s really going on.

I personally agree with Williams that any true measure of price increase would easily show that prices are rising much faster than income or GDP. Every once in awhile I still think about how during school lunches in the 1980’s, I would often buy a slice of pizza for $1. Whereas now, if you can find one for less than $4 or $5, that’s more the exception than the norm. And if you back out the numbers on that one, over the past 30 years, the price of a slice has risen closer to 5% annually. As opposed to the 1-2% figure that the Federal Reserve and government data often cite.

So if you watch and read some of the news and wonder if you’re getting the full picture, you’re not alone. You’re very accurately assessing the truth, and I would suggest you continue to follow that intuition.

Of course this is the exact reason why so many have turned to gold and silver. And especially if you subscribe to the Williams school of thought, that prices are indeed rising much faster than income, then gold and silver continue to remain an intelligent response to the current financial environment.

Especially over the long-term.

Because while many are less than thrilled about the current seven-year bear market for precious metals, remember that gold was under $300 per ounce in 2000. And even despite the recent decline, still sits around $1,200.

Given the current market and world conditions, I continue to believe that the rate of increase in the price of gold over the next 20 years will be even greater than what we’ve just seen.

–Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).