No Inflation? Hard to Believe

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On Monday, I did something that I've never had to do before. I paid the folks at my neighborhood ExxonMobil (NYSE: XOM) $40 for a single tank of gas. Two years ago, we'd come close to that level here in Northern Virginia, but finally my tendency to wait until I'm driving on fumes and the recent spike in gas prices took me over the top.

I'm so ashamed.

This little data point tells me something that no government inflation numbers seem to: Things are getting more expensive. Inflation, even if it is not captured by the Consumer Price Index (CPI), the Producer Price Index, or some other price index, means that our paychecks are not going as far as they had.

I don't just base this on my own tank of gas. Kimberly-Clark (NYSE: KMB), makers of Huggies, Kleenex, and a host of other paper products, announced this week that it was planning to raise its prices in the U.S. in the third quarter of this year. The reason for the price hike is that Kimberly-Clark is finding that it needs to offset higher prices of its raw materials, particularly the fibers that go into the majority of its products.

These things matter, because tissues, toilet paper, and yes, gasoline, are things that consumers buy every week. Yes, I'm aware that prices for computers and other tech gadgets have dropped. The number of times I've bought from Dell (NYSE: DELL) in the past year is zero, just as it is with Hewlett-Packard (NYSE: HPQ) and IBM (NYSE: IBM). The number of times I've filled up my tank, on the other hand, or bought food or paper products is substantially higher. In a restaurant this past week, I had to pay a "beef surcharge" because of spiraling costs for good old American cow. Apologies for the inconvenience, but that will be 50 cents.

This is why I fail to understand why the Bureau of Labor Statistics even bothers putting out CPI numbers excluding energy and food costs. That's sort of like pricing the cost of a house without drywall and paint. And energy costs don't just affect us at the pump or in our monthly gas bills. Energy costs affect everything. Petroleum costs make chemical manufacturing substantially more expensive, they make transportation more expensive, they make medical care more expensive.

Oil prices are high enough at $38 a barrel that even the Saudis are concerned, though I would note that some of this expense has to be laid at the feet of the declining dollar as much as raw adjusted costs of petroleum. What other expenditures are consumers not making since the price to fill up their tanks has risen 20% in short order?

American interest rates have been taken down to giveaway prices in the hope that consumers would continue to spend and companies would invest in things that would create jobs. We have the former in spades, with the latter pretty nonexistent. The dollar remains in low demand overseas, which is the simple reason why it has shed 40% of its value to the euro in the last two years. A lower dollar means things from abroad are more expensive. One of those "things from abroad" is most of the petroleum we consume. So our low-interest dollars purchase less. How could this possibly be a good thing?

Bill Mann owns none of the companies mentioned in this story. He encourages investors to take a look at the promising income bearing companies that his colleague Mathew Emmert unearths each month in The Motley Fool's Income Investor.