PracticalDad Price Index - March 2016: The Human Face of Deflation
The data is collected and calculated for the March 2016 edition of the PracticalDad Price Index and once again, the Index has declined as deflation now roars through the grocery stores. The PracticalDad Index marketbasket consists of 47 items from a standard grocery store that are commonly purchased by a family on a budget. These items compose the Total Index and for March 2016, the Total Index for this marketbasket was 102.86 (November 2010 = 100.00) and was down a full basis point from February's level of 103.86. The Food-Only Subindex is composed of the 37 foodstuff items within the basket and in March was actually less, at 102.85 (November 2010 = 100.00) and declined by a considerable 1.42 basis points from February's Subindex reading of 104.27.
Let's put this into perspective. The PracticalDad Price Index began in November 2010 as a kitchen-table project to ascertain what was actually happening to food prices on a family level. The Federal Reserve had commenced the first of three efforts at Quantitative Easing, an untried and novel approach to kickstart economic activity by flooding the financial system with liquidity. The QE programs were the brainchild of the then-chairman Ben Bernanke, an economics professor whose academic expertise lay in the errors of his Great Depression era predecessors in the effort to fend off the deflation that laid waste to the global economy. It was only natural that such an untried policy approach gave rise to immense debate over it's ultimate impact and whether it would fail, create the unicorn-like moderated inflation of 2% or tear the economy a new one that spewed a raging storm of inflation. Yeah, good times... But for all of the conversation about isolated items rising or falling in price, or the closely followed CPI, how would this play out in the marketbasket composed of items purchased by the common American family? And so the PracticalDad Price Index was born.
So in five years and trillions of dollars created and injected into the Financial system by the Federal Reserve via three separate QE programs, what has been the result? From the period of November 2010 to November 2015, the Federal Reserve more than doubled the asset holdings on its balance sheet, seeing an increase from approximately $3 Trillion to $7 Trillion while the DJIA during the period of November 2010 to March 2016 rose by 60%, from 11124 to 17829. The gap between the uber-wealthy and the average American increased in terms of amount of assets owned by the top .1% - that's top one-tenth - now equals that owned by the bottom 90%. So Ferrari and other luxury car firms sold more, and the prices taken by collector's artwork at auction increased as well. But that's on the upper end of the spectrum.
What's happened on the lower end of the spectrum is a far, far different thing. By 2014, the most recent year for which Census Bureau figures for median household income are available, the median household income was 6.5% lower than the same category in 2007 ($53,657 vs $57,357), the last year prior to the Financial Crisis. The number of Americans receiving SNAP benefits rose from 44 Million in December, 2010 to 45.4 Million in November, 2015. This is the human face of deflation: deflation isn't just prices mechanistically declining on a grocery-basket basis, it's the result of thousands of grocers and suppliers working to maintain sales and profitability in the face of lower incomes, competing demands and increased hunger amongst millions. Deflation occurs by substituting lower priced brands of food from cheaper suppliers across a broad range of foodstuffs. And if the quality has to suffer, so be it. Deflation is not a sudden event but instead a steady grind as economic pressures sand down incomes with the result that the suppliers and producers have no choice but to lower their prices so as to maintain sales and hopefully, profitability.
When economists talk about inflation and deflation, it's treated much as any other abstract principal and the essential humanity behind them is lost. When I finally saw The Big Short with Middle the other week, I noted the scene in which two young hedge fund managers are in Las Vegas and break into celebration when they find that their mentor, Ben Rickert (Brad Pitt), has been able to secure the credit default swaps that will - hopefully - pay off massively when the housing market breaks. But Rickert simply stares at them and reminds them that for all of the statistics, there are people who will suffer. Lost homes and bankruptcies, broken families and dislocation, and the two become more grave at the reality. And so it is with deflation. Prices will fall, but there is a cost to it. The human face of deflation within the PracticalDad Price Index is one of hunger and quiet desperation. It is the face of millions of Americans requiring government assistance to put food on their tables. It is the face of the Food Bank manager who has to once again search out donors to help replenish the shelves for those in need. It is the face of the elementary school student who receives a backpack each Friday afternoon during the school year, filled with enough food to sustain her through the course of the weekend until she returns to school and a free lunch the following Monday. It is in the face of the elder who has to choose whether to spend precious funds on food or medication. It is the face of the Boy Scout who participates in an annual national food drive to replenish food banks, and whose family is possibly going to have to utilize that food in another week.
This project began out of an intellectual interest in what was occurring on a policy level. But maintaining it for the past five years - following the same 47 items - has become more than an intellectual exercise. It has brought an awareness of the faces within those stores and with that, a frank anger at the hubris and detachment of so many of the political and financial elite. Listen to what is being said and the manner in which it is presented. But most importantly, try to move beyond the language and see the effects upon the humanity which will ultimately feel the impact of the proposals. This affects our neighbors, co-workers and classmates. This affects us and most importantly, it affects our children. Because God forbid that the face of the youngster looking at the stark choice is our own child.
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