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3 weeks ago

How Does Inflation Impact You?

CATURDAY
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Consumer Price Index (CPI) data for August, released last week, made headlines after its 1.9% year-over-year headline increase in prices exceeded expectations of 1.8%. This was significant given that the last five monthly CPI reports fell short of market forecasts. Major drivers included higher gas prices (due largely to refinery shutdowns stemming from Hurricane Harvey) and a 3.3% increase in the cost of housing.

Energy and housing are among the largest components of the CPI basket (which is set by the Bureau of Labor Statistics [BLS]), and therefore have the most impact on the overall headline inflation number. However, inflation’s impact on you depends on what you actually buy each month. With this in mind, we think it can be both instructive and fun to look at the underlying items in the CPI basket to determine which saw the largest price gains and losses, regardless of the BLS’s idea of relative importance:

While gasoline and other types of fuels made up four of the top 10 price gains (even more if individual grades of gasoline are considered), another somewhat surprising trend showed up—breakfast. Bacon and related products saw the largest price increases in the CPI basket, at 12.5% year over year. Frozen noncarbonated juices and drinks were also in the top 10, with a 6.6% year-over-year gain (another area that saw potential hurricane impacts, though this time from Hurricane Irma).

So the bad news is that if your breakfast routine includes bacon and orange juice, you’re probably spending more money than you were a year ago. But, if you’re flexible in your breakfast options, you might consider alternatives that saw prices decline year over year, including: Breakfast sausage (-1.4%), eggs (-3.7%), breakfast cereal (-0.8%), and fresh whole milk (-1.1%).

Bacon and orange juice are very small components of the overall CPI basket, and therefore inflation in these areas doesn’t add much to the overall headline number. However, looking at the individual items in the basket can help explain why the impact of inflation can sometimes be felt more in our individual pocketbooks than the headline number would suggest.

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRA/SIPC

Tracking # 1-647240 (Exp. 09/18)

4 weeks ago
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