Financial Opinion and Insights

The Inflation Shell-Game

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

You watch the news.  And, you’ve seen them quote the Consumer Price Index (CPI) almost daily.  They tell you the CPI is currently below 2% and that the U.S. is enjoying one of the lowest inflation rates in the world!

Is that true?

Not according to my economist, who also happens to be in charge of purchasing for the Mr. and Mrs. Lorenzen household partnership.   She’s been telling  me for the past year how the prices we’re now paying at the checkout are far different from the CPI numbers she’s hearing on newscasts – and, she’s probably right.

DWS Investments recently conducted a study to find out what prices were going up and which ones were going down.  Using Morningstar data, they divided the prices into `wants’ (luxury items) and `needs’ (basic items).

They found the `needs’ included seven food items , two energy-related items, and one for delivery services.  The `wants’ category included 4 in recreation, 3 in housing-related luxuries, 2 food, and 1 in software and accessories.

Here’s the interesting part:  ALL of the `needs’ items have gone up in price; and ALL in double-digits!   The highest was butter (food category) at 21.88%.  The lowest increase was `uncooked other beef and veal, also in the food category, at +10.81%

How about the `wants’?  All of them were down in price.  The biggest drop was in televisions (recreation category) and the smallest drop was in lettuce (food category).

Now consider the following:

  • There are 7 food items and 2 energy items in the `needs’ category – all up in price double-digits.
  • There are 2 food items and 0 energy items in the `wants’ category  which went down in price
  • Food and energy are not included in the CPI numbers you see quoted on television.


My household economist is right.  Our personal CPI – let’s call it PCPI – is different from the news CPI; and both the DWS study and my economist appear to be in agreement – it’s by a large margin.

So, what inflation number should you be using in your planning?  That’s between you and your advisor; but it’s an excellent conversation to have.


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization.