Is Inflation Happening Now?

Now that we’re all cruising aboard the QE2, I wonder  whether we’ll reach the promised destination of a return to economic normality.  The cost of this return however, is the value of the dollar and whether we’ll be able to afford anything at all after we’re done.  There’s been growing concern about the validity of the economic data coming from the Federal Government, especially in terms of consumer prices.  The Federal Reserve has kept interest rates at all-time lows under the mantra that the Consumer Price Index is .1%, exclusive of food and energy.  Apparently the Fed believes that the rest of us don’t eat and don’t have to buy gas, so we can stay home on our extreme diets.  I’ve heard people say that food prices are rising, and I believe that they will if they aren’t already, but nobody can seem to say how much.

So we’re going to put it to the test and track the prices of commonly used household items in the PracticalDad BOG (Boots on the Ground) Index.  The BOG Index will measure, monthly, the prices of selected grocery items in a  simple, straightforward format.  What do we actually buy and what’s happening to the price?  It’s actually not difficult to do provided that you have some rules in place at the outset and then follow them scrupulously; the key is to keep it simple and consistent.

B(oots) O(n the) G(round) Index Rules

  1. The Index will be calculated by following prices on a monthly basis at three different grocery stores in my vicinity.  These stores comprise a mix:  a locally owned grocery; an American owned Grocery chain store; an internationally owned grocery chain store.  I don’t pretend that there aren’t regional differences but we’re looking at the price changes in totality, not pricing by region.
  2. The items are those that would be purchased by a family with children.  The item list will not change and the items will be consistent from store to store in package size and comparability.  A five pound package of ground round (80% lean) will be the same item priced at each of the three stores.  If an item is no longer available at one of the stores, then the best-fit alternative will be used.
  3. Because one of the concerns about pricing is “stealth inflation”, in which prices remain the same but package size changes, the package size of each item will be consistent.  In the event that the package size of an item changes, I will adjust the price recorded to reflect the change by recalculating the item on a per ounce basis.  This will then be carried forward as we move along.
  4. If the stores do not have identically sized packaging for the item in question, the price for the item will be calculated at the base unit price (per ounce, per count, etc.) and equalized amongst the three in a common size.
  5. Pricing will not allow for BOGO or other such specials so that price movements aren’t distorted.  Likewise, there will be no allowance for coupons.
  6. As much as practicable, the BOG Index will concentrate on generic items.  If generic items aren’t available, such as diapers, then a brand name will be used.
  7. Pricing will always occur during the first week of each month and the prices as of November 2010 will constitute the base level of 100.

It’s going to be a work in progress but with a little time, the question of whether there’s price inflation – and the extent to which it exists – will become apparent.

The results of this month will be posted next week.

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