PRICE PINCH, LESS PAINFUL, BUT STILL SHARP

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By Suzanne Hazlett, MBA, CIMA®, CFP®

Suzanne Hazlett, MBA, CIMA®, CFP®, founder of HAZLETT WEALTH MANAGEMENT, is a Certified Investment Management Analyst® and CERTIFIED FINANCIAL PLANNERTM professional.

Last week, the U.S. Bureau of Labor and Statistics released its findings on September’s Consumer Price Index (CPI) report. The report showed a slight cooling in the momentum of core inflation. The CPI measures the average change over time in the prices for a representative consumer goods and services basket. While the inflation rate declined more than 6% from its 40-year peak of 9.1% in 2022, most consumers are well aware household purchases remain more expensive than a year ago. What is included in the CPI metrics, and why does it matter?

  1. Measured Items – Expenditure items are classified in the CPI into more than 200 categories and are arranged into eight major groups.
  2. Food and beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks)
  3. Housing (rent of primary residence, owners’ equivalent rent, utilities, bedroom furniture)
  4. Apparel (men’s shirts and sweaters, women’s dresses, baby clothes, shoes, jewelry)
  5. Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
  6. Medical care (prescription drugs, medical equipment and supplies, physicians’ services, eyeglasses and eye care, hospital services)
  7. Recreation (televisions, toys, pets and pet products, sports equipment, park and museum admissions)
  8. Education and communication (college tuition, postage, telephone services, computer software, and accessories)
  9. Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses)

How is the CPI used?

As an economic indicator – As the most widely used measure of retail inflation, the CPI is a significant indicator of the effectiveness of government economic policy.

As a tool for adjusting income payments – Social Security benefits and military and Federal Civil Service pension payments are indexed to the CPI. Many collective bargaining agreements tie automatic wage increases to the CPI in the private sector. Some private firms and individuals use the index to keep rents, alimony, and child support payments in line with changing prices.

Determining tax bracket thresholds – Federal (and some state) income tax bracket thresholds and other parameters are adjusted to the CPI.

A healthy economy typically generates inflation in the range of about 2%, reflecting increased economic activity stemming from a growing population and productivity gains. The Federal Reserve sees that inflation objective as out of reach until 2025 or 2026.

Suzanne Hazlett, MBA, CIMA®, CFP®, is a Certified Investment Management Analyst® and CERTIFIED FINANCIAL PLANNER Professional. HAZLETT WEALTH MANAGEMENT, LLC is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. 675 Sun Valley Road, Ketchum, Idaho, 208.726.0605. HazlettWealthManagement.com