Worried about inflation?
Mr. Greenspan, Chairman of the Federal Reserve Board, is. So are others, witness the wallowing uncertainty of the stock market.
My advice: Don’t worry about inflation. We can live with inflation a lot better than we can live with unemployment.
Besides, we have the inspiring example of the rich.
If rich people can live, undaunted, with large price increases at the local Hermes or Gucci shop, then certainly the rest of us should easily cope with a little price creep at Wal-Mart. I say this having made a horrifying discovery: the cost of luxury goods has risen faster than the Consumer Price Index in each of the last five years.
Yes, you read that right. The wealthy have suffered through five consecutive years of punishing price increases. While you and I got away with only 2.6 percent in 1994, they were hit with 4.1 percent. In 1995, while all of us hoi-polloi were getting away with only 2.8 percent inflation, the rich were burdened with price increases averaging 6.75 percent. And now we know it continued in 1998, with luxury prices rising 3.9 percent while the CPI rose only 1.6 percent.
This is no flash in the pan. The cost of luxury living has risen faster than the CPI in 7 of the last 10 years and 12 of the last 15 years.
I learned this from an index maintained by my favorite non-government agency, champagne makers Moet and Chandon. Based roughly on the La Dolce Vita index I created in 1975 and the Cost of Living It Up index created by Legg Mason Walker analyst Raymond DeVoe in the same year, the Moet and Chandon Luxury Index regularly checks the prices of genuine luxury purchases.
Let me give you some examples. While the makers of Teuscher Imported Chocolate Truffles have bravely held the line on a pound of their candy at $49 since 1996, the price of Dom Perignon has risen from $90 to $100 a bottle. Worse, the cost of a wash, cut, and blow-dry at the Bumble and Bumble salon in New York has skyrocketed from $95 in 1996 to $105 in 1997 and $115 in 1998. That calculates to an inflation rate of 10.2 percent a year, compounded, for luxury hair care.
I don’t want to be an alarmist but we need to take this seriously. Just as the loss of kingdoms has been traced to a missing nail, we can imagine the Millennium unraveling with a chain of events that goes like this:
For want of a bottle of Dom Perignon, a dinner was dimmed,
For want of a successful dinner, a deal was lost,
For want of a closed deal, a new IPO was lost,
For want of an IPO, an Internet company ran out of cash,
For want of cash, an Internet company closed,
For want of an Internet start-up, a dozen programmers lost their jobs,
For want of a job, a dozen programmers stopped buying Starbucks coffee,
For want of coffee sales, the economy collapsed.
Take a longer view, as with the figures below, and you can see that the cost of luxury living has more than doubled since 1984 while the regular cost of living has risen a mere 63 percent.
The Crushing Burden of Luxury Inflation
| Year | Luxury Index | L Index | CPI change | CPI Index |
| 1984 | 8.20% | 108.2 | 4.00% | 104.0 |
| 1985 | 5.00% | 113.6 | 3.60% | 107.7 |
| 1986 | 6.10% | 120.5 | 1.90% | 109.8 |
| 1987 | 9.00% | 131.4 | 4.40% | 114.6 |
| 1988 | 8.70% | 142.8 | 4.40% | 119.7 |
| 1989 | 6.40% | 152.0 | 4.60% | 125.2 |
| 1990 | 6.20% | 161.4 | 6.10% | 132.8 |
| 1991 | 1.80% | 164.3 | 3.10% | 136.9 |
| 1992 | 1.80% | 167.2 | 2.90% | 140.9 |
| 1993 | 2.30% | 171.1 | 2.70% | 144.7 |
| 1994 | 4.10% | 178.1 | 2.60% | 148.5 |
| 1995 | 6.75% | 190.1 | 2.80% | 152.6 |
| 1996 | 4.80% | 199.3 | 3.30% | 157.7 |
| 1997 | 3.40% | 206.0 | 1.70% | 160.3 |
| 1998 | 3.90% | 214.1 | 1.60% | 162.9 |
Sources: Moet & Chandon, Department of Labor
What to do, other than buy your yacht now, while you still can?
No one knows. Alan Greenspan won’t even talk about it.
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Pexels-Nadin Sh
(c) Scott Burns, 2022
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