As many of you know I have been warning about cost-push inflation since Quantitative Easing began.
The flood of liquidity would find it's way into the markets, commodities would surge, and the cost of doing business would spike for business translating into higher prices. All while jobs numbers - and wages - stagnated.
NONE of this, however, would show up in our Consumer Price Index because in 1999/2000 government changed the way the CPI was calculated and gutted all the factors like food and energy from the calculations.
Thus we have a situation where inflation, when calculated like it was in the 1970s, 1980s and 1990s, is surging along at about 8% while 'official' government statistics peg it at 1-2%.
Yesterday our friends over at Financial Insights commented how inflation is raging in China and retail margins over here are facing a coming squeeze.
(A squeeze which isn't just coming, it's already here. We're finally seeing it translate into higher prices but make no mistake, that squeeze has been going on for months)
I commented on the post at FI and jokingly said that China would just have to change the way they calculate inflation like we did in 1999/2000 and... presto-chango... no inflation.
Turns out is wasn't all that much of a joke as China is about to do just that.
The old saying goes that there are lies, damn lies and then there are government statistics.
Remember that the next time you're wallet is bare and the government (and some bloggers) tell you there is no inflation.
As I said last Friday, combine this squeeze on basics with rising interest rates and new mortgage rules... and life for home owners with a mortgage here in the Village on the Edge of the Rainforest is going to get very, very difficult.
Once this process kicks into high gear, and the serious price inflation comes, I think we will all look back and be shocked that there were people who actually worried about deflation in 2008-2010.
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