New Recipe for Consumer Spending: Decreasing Wages and Increasing Prices

When I turn on the TV or radio or surf popular financial sites and I hear or read journalists telling their audiences the economy is improving, I can’t help but feel sorry for their audiences.

When I talk to people; all I hear is how their pockets are affected, and even though they are “making money,” their income just disappears into thin air. The fact is that consumers drive the U.S. economy, and currently they simply can’t spend.

Wages adjusted for the inflation rate have decreased 0.3% in September and 0.6% in August. (Source: Market Watch, October 16, 2012.) If you were earning $100.00 in July, by the end of September, your wage was actually only worth $99.10.

At the same time, basic things that really matter to consumers in the U.S. economy are rising in price. The Gasoline Index (index that tracks the prices of all types of gasoline) increased seven percent in September; it has been increasing for three months and was up nine percent in August! (Source: Bureau of Labor Statistics, October 16, 2012.)

While wages continue to fall, and prices for basic goods continue to increase, the Core Consumer Price Index (CPI), a measure of the inflation rate in the U.S. economy excluding energy and food prices, shows an increase of only 0.1% in September, similar to the inflation rate increase in August of – 0.1%.

We all know how good the inflation rate looks when you look at the Core CPI, because it’s an outdated measure of inflation that excludes energy prices and food. Hence, the core CPI assumes people can walk to work and not eat.

The real rising inflation rate is taking a toll on the U.S. economy. The basic point is that if consumers spend more money on food and gas, because both are rising in price, they will have less money to spend on other things.

If you look at gasoline prices compared to gold bullion prices, gasoline prices have gone down since the beginning of this year, as the chart below shows.

gasoline unleaded spot price gold spot price

Chart courtesy of

But when measured in U.S. dollars, the price of oil has been rising, because the more money the Federal Reserve creates, the bigger the freefall for the U.S. dollar against other world currencies, except the euro.

See this chart below, showing the price of crude in U.S. dollars.

gasoline unleaded spot price gold spot price

Chart courtesy of

Dear reader, what we are seeing is a war against the wages and pockets of American consumers. The printing of American dollars is in process and there is more to come. The low “official” inflation rate you see now will become history quickly.

Where the Market Stands; Where it’s Headed:

We are in the very late stages of a bear market rally in stocks that started in March of 2009.

What He Said:

“A low savings rate was eventually blamed for the length of the Great Depression. Consumers just didn’t have enough money to spend their way of the Depression. With today’s savings rate being so low, a recession could have a profoundly negative effect on overextended consumers.” Michael Lombardi, Profit Confidential, March 26, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.