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Inflation Keeps 12 Days of Christmas Out of Reach By John Whitefoot for Investment Contrarians | Dec 3, 2012 •

The results of PNC Wealth Management’s annual Christmas Price Index were recently released, and it’s not looking good for consumers. If you want to financially re-create “The Twelve Days of Christmas,” in which a rich lover goes to town on a shopping spree, you’ll have to shell out a little bit more this year. According to the 29th annual survey, it will cost $25,431.18 to purchase one set of each of the gifts given in the song. That represents a 4.8% increase from last year, a 3.5% increase in 2011, and a 9.2% increase in 2010. This year also represents a 101% increase over the $12,623.10 price tag from the original 1984 survey results. Now granted, the Christmas Price Index is not a serious economic indicator, and the average consumer is not going to throw down cash for eight maids-a-milking, five golden rings, or a partridge in a pear tree…but it does go to show the disconnect between the inflation rate and what consumers are really paying. Considering the modest economic growth we’ve had, the increase is a little unexpected. The Christmas Price Index would have been even higher in 2012, except that minimum wage hasn’t increased. At 4.8%, the 2012 Christmas index significantly outpaced the government-tracked Consumer Price Index (CPI), which rose 2.2% in October from the year-earlier period. (Source: News release, “Consumer Price Index – October 2012,” Bureau of Labor Statistics, last accessed November 30, 2012.)

Digging a little deeper, month-over-month, the shelter index increased 0.3%, its largest increase since March 2008; the food index increased 0.2% in October, with the index for food-at-home rising 0.3%, its largest increase since September 2011. Year-over-year, the food index rose 1.7%, the energy index increased 4.0%, and the shelter index was up 2.2%. Inflation is all about perspective. How it impacts a new “Maserati” means nothing to the millions of Americans earning minimum wage. The same cannot be said for the inflation rate on a loaf of bread. On one hand, there are critics saying interest rates should stay near zero; doing so would carry minimum inflation risks and boost growth. Others maintain the U.S. central bank could get into trouble if it doesn’t limit the amount of assets it purchases. After all, you can’t spend your way to prosperity with reckless abandon. Since 2008, the U.S. Federal Reserve has pumped trillions into the economy in an effort to spur growth. It has also had the reverse effect, shrinking the buying power of each dollar, which is the driving force of inflation. Since July of 2012, the U.S. dollar index has gone down more than five percent. As the U.S. dollar declines in value against other world currencies, goods imported into the U.S. become more expensive. Unfortunately, the average American’s income is not rising in step with higher prices for goods and services. To deal with inflation and higher prices, Americans will need more money to buy essential goods; but with the state of the U.S. economy, an increase in wages is not on the table. Of course, inflation wouldn’t be as big a problem if the employment numbers were better —but they’re not going to be. The Congressional Budget Office (CBO) expects the U.S. unemployment rate to hover near eight percent. The official U6 unemployment rate (which includes people who have given up looking for work and people who want fulltime jobs but are stuck with only part-time jobs) has held steady for months at about 15.0%. It’s easy for analysts like Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, Canada, to say, “Inflation in the U.S. is very subdued,” because they’re analysts; they see the population as a set of numbers. (Source: “Consumer Prices in U.S. Rose at a Slower Pace in October,” Bloomberg Businessweek, November 15, 2012.) But inflation isn’t “subdued” for the average American just looking to get by. Where can the average American investor turn to combat a weak U.S. dollar? Because the U.S. dollar is weakening against many foreign currencies, other stronger nations will see their currencies increase in value. Instead of stuffing your account with

U.S. dollars and/or jumping into the foreign exchange market, you may want to consider currency fund PowerShares DB US Dollar Index Bearish (NYSE/UDN). The PowerShares DB US Dollar Index Bearish fund is designed to replicate shorting the U.S. dollar against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. While this Christmas may not be merry for a lot of Americans, 2013 could usher in a period of growth for those betting against the U.S. dollar.

Inflation Keeps 12 Days of Christmas Out of Reach The results of PNC Wealth Management...