Not really dead

According to government press releases, inflation in North America is virtually non-existent, with prices rising perhaps only at a one per cent rate. Hence, it is implied that government rescue operations have worked to revive the economy and with no harmful side effects. So much for mythology!

Take asset inflation. The price of many “things” has been climbing drastically. The stock market has doubled over the past five years, as have house prices. The cost of many food items is about one-third over year-ago levels.

Still, it should be noted that there is a lag between all the money that has been poured into the economy and the total impact on prices. The tightening labour market that is underway and the wage response does not occur immediately. Clearly, unemployment is down and the scarcity of labour in many sectors suggests that wage inflation will be coming.

Companies soon will feel the effects of the rising pace of unit labour cost, inevitably hurting profit margins. To compensate for that companies will raise their selling prices, shortly appearing in the Consumer Price Index.

One should remember that prices fall behind the factors that eventually will assert themselves. Nevertheless, these intervals should last longer than commonly is recognized; after the severe business contraction that has taken place, that surprisingly could be extended.

It would be foolish and dangerous to infer that inflation is dormant. The United States central bank, the Federal Reserve System, has boosted the monetary base by 300% since 2008. One should recall the reserves of the Federal Reserve and currency in the hands of the public (sometimes referred to as high-powered money) because a change in the monetary base results in an even bigger change in the total money supply.

It should be obvious that more money supply means more inflation. Can any rational person dispute the fact that more money in circulation will lead to more inflation?

As part of a government efforts to mask what is going on, the Consumer Price Index has been “adjusted” so that quality improvements mean that the list price should be considered lowered by the fact.

Hence, if a computer’s speed is twice what it used to be, the price theoretically is lower; one is getting “more bang for the buck”. Automobiles now have side padding, worth perhaps $300. Thus, present-day cars offer something new and that means that for the listed price that one is paying, not $30,000 but $29,700.

That is nonsense as one has no choice but to pay for extras. Too, now the CPI allows for substitutions, so that, say if oranges cost more, the CPI counts apples as stand-ins.

Too, airline fares are supposedly unchanged, but now one has to pay for luggage, less leg room and service.

Obviously, given the facts the reported Consumer Price Index is of no use.



Bruce Whitestone