Yahoo Finance just published an article stating that grocery prices are rising faster than inflation, apparently as most of us expected. Here's a quote:
"Research by the Reserve Bank has confirmed what most supermarket shoppersalready know: that grocery prices are rising faster than the current inflation rate of 2.5 per cent. The research published in the latest Reserve Bank Bulletin shows that prices for food, beverages and tobacco as a group have increased by an average 4 per cent each year since 1993."
AND
"However, the cost of staples such as fruit and vegetables (up 4.1 per cent per annum), dairy (up 4 per cent per annum) and bread and cereals (up 3.8 per cent per annum) all exceeded the average inflation rate of 2.7 per cent per year."
Wow... I'm speechless, no not really. If the actual inflation rate was 2.5% then I would be 'outraged', as the government and central bank would like me to be. As I've discussed previously on my blog and this blog, the actual rate of inflation is substantially higher than the official RBA statistic. Why, because they quite literally fudge the numbers... like most OECD countries, hedonics are used to calculate the rate of inflation via the consumer price index (which incidentally is not a measure of inflation, more on that later). To get a break down on how the process works you can visit: http://en.wikipedia.org/wiki/Hedonic_regression. The effect of this method, combined with the RBA's select basket of goods to calculate the CPI, you get a rate of inflation lower than reality... designed to make politicians and plebs happy.
But how do you really know that the rate of inflation is much higher than the opium-induced number provided by the RBA... well as I have discussed previously, the savings interest rate in your local bank will always be below the real rate of inflation (which has been confirmed to me personally by two bankers and an accountant), which incidentally means that you lose money each year that you keep it in the bank. So what is the average savings rate... according to http://www.ratedetective.com.au/savings-accounts, it is approximately 5% (give or take a few basis points). So this means that the real inflation rate is somewhere above the 5% level and to make matters worse, your salary is indexed to the CPI, which as we now know is below the real rate of inflation, which means that grocery prices are getting just a little beyond your reach every year.
In short, the prices of groceries have risen comparably with the actual rate of inflation. Have a great weekend folks, sorry to leave you with some sour news.
God bless,
Dr Washo
For more information of government statistics and how they are manipulated, check out: http://www.shadowstats.com/article/consumer_price_index
Hi Dr Washo, thanks for the post. Certainly would like to look closely at how the CPI is calculated in Australia. When I was in the UK I dug into the details a little and was surprised at what I found. Certainly the manipulations due to hedonic improvements looked dodgy. It does kinda make sense that the basket has to change over time as people change their purchases. For instance, I recall the UK adding MP3 players and laptops to the index at some point. At least in the UK they still have the RPI which is generally 2% above the CPI (the RPI is used to index public pensions AFAIK).
Justin posted recently on a related topic - growth in the money supply. Looking at the chart there, it looks like M3 growth has remained above 5% since the early 1990s recession. I’m never sure which money supply indicator is the best for Australia. I wonder if the monetary inflation looks worse for broad money?