FAST FIVE: It's "Permanent" Not "Temporary" – Dollar's Purchasing Power Plunged At Fastest Pace Since 1982

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In terms of the politically incorrect way of calling consumer price inflation: The purchasing power of the consumer dollar – everything denominated in dollars for consumers, including their labor – has dropped by 0.8% in May, according to the BLS, and by 2.4% over the past three months, the biggest three-month plunge in purchasing power since 1982: On an annualized basis, the three-month drop in purchasing power amounted to a drop of 9.5%, and this eliminates the Base Effect which only applies to year-over-year comparisons.

The only thing that might make a small portion of it “temporary” is if there is a period of consumer price deflation, which has happened for only a few quarters in my entire life, for example in the last few months of 2008, which is indicated in the chart above.

This chart shows the actual CPI as a price index, not the year-over-year percentage change of that index.

Note how the index used to rise into the mid-1990s, at which point the hedonic quality adjustments were applied and forced the index back down: For a dose of reality, data from the auto industry shows that the “average transaction price” (ATP) of new vehicles sold to retail customers in May jumped to $38,255.

The reason this homeownership component completely misses the red-hot inflation in housing – the loss of the dollar's purchasing power with regards to homes – is that it's based on surveys of homeowners' estimates of how much their home would rent for.

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