Thursday, August 18, 2011

Thursday Post #3: Remember... there's no inflation (the government said so)

Faithful readers know this blog has been harping about cost-push inflation for quite a while now.

Back on October 7th, 2010 we said:
  • We will have deflation... in some areas. But we are also going to suffer a concurrent bout of inflation too, producing a paradox that many have difficulty reconciling.

    The vicious cycle created by the Federal Reserve’s Quantitative Easing [Note: we now call it QE 1] monetary policy is kicking in. We are seeing a huge influx of speculative money flows into the commodity sector pushing up food prices across the board. At some point, sooner rather than later, the rising cost at the wholesale level as indicated by the CCI and the futures boards will translate into higher retail prices for consumers, who are already being pinched by stagnant wages and falling net worth.

    The result – consumers are forced to retreat on spending with the next result – a slowing economy – with the next result – more Quantitative Easing – with the next result – more rising prices as currency induced inflation in essentials rises further will compound the problem exponentially as the cycle repeats itself.
Well QE 1 begat QE 2 and now we are discussing QE 3.

Meanwhile, as the NBC story above outlines, the predicted retail level price shock is starting to set in.

Currency induced cost-push inflation is hitting store shelves, especially in the grocery store.

Prior to that post, on September 15th, 2010, we asked what did cost-push inflation mean?
  • "It means the consumer is on the verge of watching his disposal income be decimated by high food prices... the only saving grace is that energy prices have not YET begun moving up alongside the rest of the commodity complex. But it's only a matter of time. When the crude complex gets involved you will see home heating bills, home cooling bills, industrial energy costs and gasoline prices join the list of soaring costs nationwide. But don't worry. None of this counts towards the Consumer Price Index anymore. Thus... there is no inflation."
One of the biggest deceptions we are being spoon-fed right now is that inflation is running at only 2-3%.

When you hear that, you certainly don't conjure up images of the 1970s do you?

But as we have discussed before, the manner in which inflation is calculated was changed in 2000. Calculate inflation as it was calculated in the 1990s, 1980s and 1970s and you get quite a different picture.

That's why I continue to be a big fan of John William's website Shadow Government Statistics.

Among other things, William's continues to offer calculations based on the pre-2000 formulas for measuring inflation.

Currently the rate of inflation is over 11%.

As people drop into the grocery store, few would dispute that right now.

Watch what happens next.  All you are going to hear about from officials is the threat of deflation. Deflation and a collapsing stock market will set the stage for QE 3.

Get ready... it's coming.

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1 comment:

  1. The Gold Market would suggest even 11% is too low for yearly inflation, no?