While the U.S. economic picture continues to show broad improvement, some concerning trends are emerging that could eventually lead into the next recession. When will the next recession happen? No one can know for sure, but my guess is it will come as a result of the continued decline in income of the middle class and working poor and the ability for their wages to keep up with inflation.
Historically we track changes in prices paid by consumers for a representative basket of goods and services called the Consumer Price Index or what’s commonly called the CPI. Charles Gave, however, has coined the term “Walmart CPI”. This index measures the change in prices for the essential goods and services that the least wealthy in our society must consume, such as rent, food and energy. What he found was that since 2000 the ratio between the headline CPI and the “Walmart CPI” has increased by over 15%. Household consumption is by far the largest component to domestic GDP, and as this gap continues to widen, it will have implications not only on the financial markets but on future economic growth as well.
The link below deals with this issue more in-depth about how the Federal Reserve’s policies are effectively taxing the poor via negative real rates.