No Haircut to the CPI Here

FedEx will increase 2006 standard list rates for FedEx Ground and FedEx Home Delivery by an average of 3.9%…

Thus reads a headline that came across my screen late Friday afternoon.

Lest it be dismissed as a mere “energy-related” price adjustment and, therefore, dismissible as a “one-time” item to be stricken from the “ex-food and energy” Consumer Price Index, or the “core” Producer Price Index, or whatever adjusted, reconfigured, massaged or otherwise made-up Price Index the bond market wants to look at in order to feel better about owning short term notes that just barely cover the FedEx price hike—keep in mind that the correlation of the U.S. GDP to the index of air cargo activity is 70%.

Consequently, when FedEx and its brethren raise prices, attention, as Mrs. Loman once said, must be paid.

Furthermore, the FedEx headline happened to come on the heals of a Del Monte Foods company conference call in which it was disclosed that unexpected increases in logistics, packing and energy costs added $40 million to cost increases over and above previously anticipated cost increases in the quarter.

The good news, at least for Del Monte? That consumers did not appear to mind the price increase, because volumes held up better than feared.

Perhaps the American consumer is ready for some good old fashioned everything-goes-up inflation, at the very moment that the government has trained the bond market to focus solely on stripped-down, “ex-food and energy and housing and packaging and FedEx and healthcare and insurance and haircuts” number.

I added “haircuts” to the stripped-down CPI based on a very personal experience this weekend: I visited my local barber for my usual $17 haircut.

Only he is no longer charging $17, as he has for the last seven or eight years that I have been using him.

He now charges $22.

Hmmm. $22 divided by $17 is…well, it’s a lot more than whatever the so-called CPI number would like to pretend it is.

Jeff Matthews I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.