Why The True Cost Of Living Is Much Higher Than We’re Told (Or Sold)

Submitted by Adam Taggart via PeakProsperity.com,

Over the past decade, we've been told that inflation has been tame — actually below the target the Federal Reserve would like to see. But if that's true, then why does the average household find it harder and harder to get by?

The ugly reality is that the true annual cost of living is far outpacing the government's reported inflation rate. By nearly 10x in many parts of the country.

This week, we welcome Ed Butowsky, developer of the Chapwood Index, to the program. His index is a 'real world' measure of how prices are increasing much faster than the wages of the 99% can afford:

In my business, I wanted to make sure that I was building portfolios that weren’t just efficient but got people the rate of return that they needed. I thought: My goodness, what I need to do is give people a list of everything they spend money on and have them track quarter by quarter exactly their increases, so I can do a better job as a financial advisor in determining what return I need to target.

I got a hold of a list of 50 major metropolitan areas and found people in every city and I gave them a job: I asked everybody to send me what items they spend their after-tax dollars on. I got about 4,000 different items. Then I took the 500 that most frequently appeared on the list and we've been tracking specifically these same items in every city since that period of time. I weight this list based on what percentage of a normal income people spend on each item.

The purpose of this index is to let people know that, if you live in California, your cost of living increase goes up somewhere between 12-13.5% a year. And if you're not making 13% more in salary, then you're losing purchasing power; and that's why people fall further and further behind. If you are in New Mexico, it's about 7%.

Basically, over the last five years, the average increase for all 50 major cities is 10% vs the average CPI of 1.5%. So it's easy to see that for people who are in the middle income, lower income or people who are living off of a pension that's adjusted based on the CPI, they've lost 8.5% of their purchasing power if everything was adjusted to the CPI year over year. Do that over five years, over 10 years — now you know why there's such a separation between wages and wealth.