On July 13th, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (inflation) increased 1.3% in June after rising 1.0% in May. Over the last 12 months, the all items index increased 9.1%.
While the Consumer Price Index received a lot of media attention, what didn’t get very much attention was when the Bureau of Labor Statistics released the Producer Price Index just a couple of days later.
If you don’t know, the Producer Price Index (PPI) is a family of indexes that measures the average change over time in prices received by domestic producers of goods and services. In other words, PPIs measure price changes from the perspective of sellers (versus CPI, which measures from the standpoint of consumers).
On July 15th, the BLS reported that the Producer Price Index jumped to 11.3% over the past 12 months, growing 1.1% in June alone (after rising 0.9% in May and 0.45 in April). It was the 6th consecutive month of increases.
Most of June’s increase (90%) can be attributed to a 10.0% jump in prices for final demand energy, as gasoline prices jumped 18.5%. But remember, although the Producer Price Index measures the wholesale prices of goods and services, those increases are eventually passed down to consumers.
Therefore, your long-term retirement strategies must account for inflation and prepare for a decrease in the purchasing power of your dollar over time. It would help if you considered assuming that inflation will be more than 3% – its historical average.
Today, inflation hovers over 9% – more than quadruple the Federal Reserve’s target 2% inflation rate – but a better assumption might be based on the last 100 years of data.
If you’re wrong and you find that the inflation rate for the next 25 years turns out to be 2%, then the purchasing power of your retirement savings will be more, not less.
Your plan is unique. Give me a call, and we’ll figure it out.