Consumer Price Index Falling Is Good News For You and Me

by | Jan 17, 2009 | Asset Management

The driver behind the whole economy is you, the consumer.

And everywhere you look, the media will remind you that we are “supposed” to be in a depression.
So let me share some things with you.

Have you ever heard of the CPI, also known as the Consumer Price Index?  It’s actually the measure of price changes in OUR world…you know, how much more do groceries cost…gasoline…things we use every day.  It’s also the measure often used to guage raises each year, how much social security checks will go up the following year.

With me so far?

With the price of oil dropping from $147 per barrell to under $40, the CPI has dropped four straight months. Let’s put this in perspective.

The drop in oil, alone, has created a $300 billion increase in purchasing power for the US consumer.  Think about it, this is the same as putting an economic stimulus check in every consumer’s hand.  If (in the last 4 months) you’ve been spending $75/month at Exxon Mobil — instead of $200/month, that’s $500 in your pocket (4 months X $125, the difference).

That is technically more money that can be spent or saved elsewhere, right?

In fact, average weekly earnings have risen three percent over the past few months.
That news is a very big deal — something very few are talking about.

Who else benefits from this?  Any business that uses oil in the production of goods.  There’s tons of them.  In fact, many companies are seeing significant drops in production costs across the board, not just from oil prices.  When things cost less to make, companies become more profitable.  And higher profits turns into earnings.

Stock markets like earnings.

The downside to a drop in CPI is this: anyone who expects a raise — based on the Consumer Price Index — may probably not see one.  Likewise, some Congressman or Senator will be grandstanding when all the senior citizens in his or her district don’t get an automatic increase in their social security checks.  Watch for that.

The pieces are being put in place for recovery.

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