Too much inflation is bad, but so is too little. The key is to keep inflation settled into a sweet spot right in the middle. When that happens, we investors should be thankful for it, and what a better time than Thanksgiving (and cyber Monday, for that matter) to be thankful?
Let's take this opportunity then to break down the current inflationary environment in terms of turkeys and Thanksgiving dinners!
Thanksgiving dinner: At home or at a restaurant?
For investors, inflation is, well, kind of a pain. You work hard to invest in the right companies for the long term, and then for mysterious macroeconomic reasons, inflation swoops in and robs you of about 2% of that gain (by historical standards anyway).
On the flip side, though, moderate inflation -- like today's 1.7% number -- indicates a growing economy. It means that consumers are incentized to buy products now before inflation pushes those prices higher. And worse yet, deflation can utterly stall an economy as consumers stop spending to wait for lower prices tomorrow.
Last year, my family ate Thanksgiving dinner at a restaurant for the first time. It was a different experience for us, but not a bad one. My preference is to eat in the comfort of our home, though, and based on inflation over the years, eating at home is the best way to get more bang for your buck.
This chart compares the relative rise in prices for Americans eating out versus eating in. For the majority of the time since 2000, eating out has become more expensive than eating at home on a relative basis. Restaurants, it seems, have been increasing prices at a faster clip than grocery stores.
The star of the show: The turkey
We can break down the inflationary pressures on Thanksgiving other ways as well, and there's no better place to kick this off than at the center of the table. For many of us, the Thanksgiving turkey (and subsequent tryptophan-induced nap) are the highlights of the holiday.
According the most recent data provided by the Bureau of Labor Statistics, the cost of turkey declined by a slight 0.2% from October 2013 to October of 2014. That compares with a 12.5% increase in all meat prices, primarily driven by increases in the price of beef. Drought conditions have thinned cattle herds across the U.S., driving beef prices up nearly 18% before seasonal adjustments.
You may want to hold the butter this year
This year, your financial advisor and your heart doctor could very feasibly give you the same Thanksgiving day advice: Skip the butter.
Before seasonal adjustments, the price of butter has increased by a ridiculous 29.8% from October 2013. The reason for butter's rapid price increase is simple economics. More Americans are eating butter while stockpiles shrink; increased demand with lower supply means higher prices. Earlier this year, butter prices hit a 16-year record high.
Here's a quick table showing some other Thanksgiving staples and their year over year price changes.
|% Change from October 2013 to October 2014|
|Before seasonal adjustments|
|Turkey (and some other poultry)||-0.20%|
|Sauces and gravy||2.70%|
|Fresh biscuits, rolls, muffins||0.10%|
While other countries struggle with double-digit inflation rates that cripple growth, consumption, and investment, Americans are fortunate enough to live in an economy with very acceptable, moderate inflation.
For myself and the rest of us here at The Motley Fool, we are thankful to have you here with us to help the world invest better. Happy Thanksgiving (and cyber Monday), and Fool on.
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