How is the CPI market basket determined? The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. For the current CPI, this information was collected from the Consumer Expenditure Surveys for 2005 and 2006. In each of those years, about 7,000 families from around the country provided information each quarter on their spending habits in the interview survey. To collect information on frequently purchased items, such as food and personal care products, another 7,000 families in each of these years kept diaries listing everything they bought during a 2-week period. Over the 2 year period, then, expenditure information came from approximately 28,000 weekly diaries and 60,000 quarterly interviews used to determine the importance, or weight, of the more than 200 item categories in the CPI index structure. What goods and services does the CPI cover? The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows: * FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) * HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) * APPAREL (men's shirts and sweaters, women's dresses, jewelry) * TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) * MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) * RECREATION (televisions, toys, pets and pet products, sports equipment, admissions); * EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); * OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses). Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. In addition, the CPI includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services. The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.) For each of the more than 200 item categories, using scientific statistical procedures, the Bureau has chosen samples of several hundred specific items within selected business establishments frequented by consumers to represent the thousands of varieties available in the marketplace. For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the Apples category. http://www.bls.gov/cpi/cpifaq.htm#Question_6
Rather than debate whether we're going to have inflation or not, I'd like to go back to the OP's question. What sectors will do well IF gubbermint reports indicate inflation? Stocks tend to do OK if inflation is less than 4%. Above that, nyet. Other than precious metals and oil, what's worth looking at?
I'd stay away from real estate for a while. Another major round of foreclosure is headed our way in 2010, due to adjustable rate mortgage rollovers. Additionally, you can only bet that more stringent mortgage and banking regulations will be put in place soon, which will inhibit the traditional rate of return that properties have afforded us in the past. I think Gold and other commodities, and inflationary-adaptable Treasury instruments may be your best bet.
Money velocity is key - the govt loves it b/c they are are in the middle of transactions taking their bite as fees or taxes & it promotes increased economic activity (self-perpetuating loop). The problem, however, is I think you may be looking at a secular change in 'Merikans attitudes toward debt. People have to repair their balance sheets, which is made even more difficult by weakening income statements (unemployment, reduced divvys, debt levels, etc). It will be painful, takes time & requires writedowns and debt repayment, & doesnt include high consumer spending levels - which is what the govt is trying to promote... Ain't gonna happen! You also have the generational trend of boomers putting kids through college & having to save for retirement - this will also impact consumer spending. The impact of a drop in McMansion prices, real wages & retirement accounts (neg wealth effect) should not be underestimated. Also, boomers will be down-sizing homes as the kiddies go off to college & they look toward retirement. Invest in smaller 1-story units in desirable locales in the Sunbelt(???) - hopefully with good water sources. G-span's low rates pushed people out onto the thin limbs of the risk tree as savers were getting crushed. Now the worm has turned and the govt wants to solve an insolvency problem by more debt. The money was borrowed & spent & now the bill is due - end of story. Banks stalling on foreclosures, mark-to-myth accounting, govt "adjusting" economic figures, etc is only making the eventual reckoning far worse. The gov't is trying to hold its finger over the holes in the economic ballon to stem the flow of air escaping while at the same time trying reflate by pumping madly. The answer may be that emerging markets develop more mature internal & regional economies, which will take alot of time as US consumer spending declines. The US may be marginalized - I don't see an export base here, but US-based multi-nationals will do better over time. Sure, Chinese are buying a shitload of cars & will in the future, but GM's legacy costs per car are probably equals the sticker price on Tata Motror's autos.. I don't see US economy leading globe outta this malaise. Its just gonna hurt. And its not going to end real soon either.
Doesn't CPI lag badly? Looking at things the market prices in realtime; stocks, the dollar, commodities, gold, these would not agree with the cpi. Also the Fed routinely states "inflation is not a concern"
The US is the world's largest exporter, believe it or not. 1.86T... http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp408f.pdf China is at 1T with about 40% of their GDP as exports.
the japan difference between japan then an U.S. now is mentioned if u skip down to the road ahead in that article
I'd say: 1. Half of the investable assets in a basket of good trendfollowing managed futures funds in order to benefit from volatility in commodity prices 2. There were periods in the 70s & early 80s when short term CDs beat every other investments as stocks churned sideways and bonds got killed. So I'd say the other half in short term CDs to take advantage of high short term interest rates.