Average Joe And Jane Inflation

Inflation for May will be released next week and everyone is biting their nails. The April number came in at 8.2% and even a tiny tick down may result in waves of relief.  Or not.  But, that’s not the point…

Today, I present the Average Joe and Jane Inflation (AJJI), calculated as a weighted basket of absolute necessities: shelter (58% weight), food at home (14%), energy (14%), transportation excluding fuel (14%). It’s a way to gauge the impact of price hikes on those Americans who live paycheck to paycheck and cannot really afford many, or any, extras -   ie the majority of US population.  

Another way to look at it is as a predictor of upcoming consumer spending on higher margin non-staple goods and services, which makes up more than 45% of the economy and probably 70% of all corporate profits. Basically, if you have to spend more on basic needs, you can’t afford to buy much else.

For April AJJI was 11.05% from a year ago - well above the headline 8.2% inflation. And how about wages, did they cover AJJI? Not even close; median wages grew just 6.6% from last year - see chart below. Joe and Jane Average are experiencing a loss of real purchasing power of 4.5-5%, something that will definitely impact consumer spending and corporate profits.

We’ll be waiting for the May numbers, but we can already look at current prices: gasoline, food, auto and homes are making new highs as we speak.

Note: The data for AJJI come from the Bureau of Labor Statistics. The wage chart is from our good friends over at the Atlanta Fed.

*****UPDATE**** June 7... Major US retail chain Target today announced that it will have to take a charge for discounting unsold inventory, because consumers, stung by high inflation on basic items, have pulled back from buying high ticket and higher margin items like TVs and apparel.  Target stock is down 12% pre-market, for a total of nearly -50% from last year's highs.