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Is Inflation Worse Than We Think?
By JLP | April 14, 2008
I read a very interesting piece titled, The great inflation cover-up, by Elizabeth Spiers in the April 14, 2008 issue of Fortune. I agree with Elizabeth that inflation is worse than we are being told. I know this from looking at the amount that we spend at the grocery store each trip.
My theory is that all of this inflation is being driven by one thing:
The price of oil!
Think about it. As the price of oil has increased, we have started looking at fuel alternatives like corn-based ethanol. Farmers grew more corn and less of everything else, which raised the prices on all the other grains. Then, to top it off, it became more expensive to get those products to the grocery store shelves.
The problem with all of this is that according to the article, the ‘core inflation’ number that the Fed uses does not include energy and food prices because they are subject to short-term volatility. Fair enough. However, I’m thinking that this is going to be a long-term thing. I think high food and energy prices are here to stay.
Anyway, if you have some spare time, I urge you to read Elizabeth’s article in Fortune. It’s both interesting and disturbing.
Topics: Miscellaneous |
April 14th, 2008 at 11:09 am
The core CPI removes volatile items, the CPI does not. What’s the problem?
April 14th, 2008 at 12:31 pm
How does this affect a company that uses the CPI as basis for their “cost of living” pay increases? Is there a better way to track the true “cost of living” for a region in the US?
April 14th, 2008 at 12:44 pm
I think the false inflation numbers are driven by entitlements. If the govt reports the true inflation then they are required to increase social security payments, etc..
April 14th, 2008 at 12:45 pm
Oil and the falling dollar are responsible for most of the price increases. The dollar may not be that far from bottoming, but that may not be the case with oil.
April 14th, 2008 at 2:20 pm
Oil and the falling dollar tied together. Oil and inflation will likely continue until the fed reverses course and starts protection the dollar by increasing interest rates.
I don’t think we can trust the CPI and that is a very big problem because inflation sneak up on us and before we know it we are looking at hyper-inflation. Nixon started wage and price controls in 1971 what inflation was only 4.9%. Today, depending on who you talk to, we have 8-12% inflation - far beyond the 4.9% the Nixon era. Therefore, because everyone is distracted with the CPI, we are on the very of double-digit inflation with hyper-inflation on deck if we don’t change our monetary policy quickly.
April 14th, 2008 at 4:40 pm
By JLP — \” My theory is that all of this inflation is being driven by one thing: The price of oil ! \”
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Your theory is totally wrong.
Price hikes are the \’result\’ of inflation, not its \’cause\’.
\”Inflation\” means increasing the quantity of money in circulation. More money around \’causes\’ prices to be bid up for everything.
Higher oil prices don\’t increase the quantity of money — they merely cause oil buyers to have less money in their pockets… as it\’s transferred to oil sellers\’ pockets. The overall quantity of money remains the same — so there is no inflation at all from mere price increases. Without inflation or government interference, prices follow the economic law of supply & demand.
Inflation is deliberate federal government policy; new money is produced in vast quantities from thin air by the U.S. Central Bank (Federal Reserve). That is the \’cause\’ of the inflation we all see and feel. It is the only cause of inflation.
Federal politicians inflate (debase) our currency so they can spend extravagantly, imposing this heavy hidden-tax on the rest of us.
Note that state and local governments don\’t have the power to legally counterfeit money like the Fed\’s do — so they are always having budget crises and shortfalls. Our President & Congressmen don\’t sweat about budget shortfalls — the Federal Reserve produces all the new money they want. Where da ya think the Trillions of Dollars are coming from for the Wall Street bailouts and Iraq War ??
April 14th, 2008 at 5:58 pm
I thought the falling dollar was the result of inflation, not the cause.
April 23rd, 2008 at 1:32 pm
Oil is only one of the factors driving inflation. Currency and future expectations are other things. I do agree that the Fed’s view of the CPI is limited. Food and Oil prices have only been going up, volatility implies up and down movement. Unfortunately it will be too political if the Fed says “Roger…I think we have a problem…”.
I wrote a post recently on my blog about the impact food prices are having on my grocery budget and I am sure like most American household I can attest to the reality of inflation.
I read the Fortune article - it is thought provoking for sure.
Andy.