Water Inflation?

According to the Department of Labor, water rates have risen an average of 5.5% per year over the past ten years.  This is more than three times greater than the reported inflation rate.  The median household bill for water and sewer services rose to $77 per month in 2016, up from $44 per month in 2006.  This amounts to a 75% increase over a ten year period.

Is the rising price of water more reflective of true inflation than government reported statistics?  Prices of stocks, real estate, and yes even water, rose significantly over the last 10 years.  Prices reflect true inflation, the number of dollars needed to purchase items in the marketplace.  The government uses the Consumer Price Index (CPI) to measure inflation, which does not include food and energy prices.  Many prices are increasing and not reported in the CPI.

The main driving force behind rising prices is the supply of money.  The Federal Reserve controls the money supply in a variety of ways.  Over the last decade, through quantitative easing, low interest rates and increased credit availability, the Fed increased the supply of dollars.  This increased supply bids up prices for goods and services.  The result is more money is needed for goods and services, devaluing the dollar’s purchasing power.

Stock market prices are directly driven by the same forces as the price of water.  These include the supply of money, interest rates and credit, which also directly impact corporate earnings.  Increased prices for goods and services may improve corporate earnings especially when interest rates are low. Increasing the supply of dollars, results in rising prices across the economy.  The purchasing power of cash is lost and is even reflected in the increased price of water, the essence of life.  This highlights the importance of proper investment in financial instruments that can keep up with inflation.

Sources: American Water Works Association, Dept. of Labor