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Posts Tagged ‘price inflation’

Price Inflation Hit a New 40-Year High in February. No, It’s Not “Putin’s Fault.”

Posted by M. C. on March 12, 2022

In early 2020, the economic was weakening after more than a decade of remarkably slow economic growth and rising reliance on monetary expansion to prevent the implosion of Fed-created economic bubbles. But then covid happened, and the Fed blamed the disease for the economic collapse and inflation that followed. Now the war will provide yet another way for the Fed and its economists to claim they were doing a great job, and it would have all been a great success if not for the Russians.

https://mises.org/wire/price-inflation-hit-new-40-year-high-february-no-its-not-putins-fault

Ryan McMaken

According to new data released by the Bureau of Labor Statistics, price inflation in February rose to the highest level recorded in more than forty years. According to the Consumer Price Index for February, year-over-year price inflation rose to 7.9 percent. It hasn’t been that high since January 1982, when the growth rate was at 8.3 percent.

February’s increase was up from January’s year-over-year increase of 7.5 percent. And it was well up from February 2021’s year-over-year increase of 1.7 percent.

A clear inflationary trend began in April 2021 when CPI growth hit the highest rate since 2008. Since then, CPI inflation has accelerated with year-over-year growth nearly doubling over the past 11 months from 4.2 percent to 7.9 percent.

feb

For most of 2021, however, Federal reserve economists and their PhD-wielding allies in academia and the media insisted it was “transitory” and would soon dissipate. By late 2021, however, economists began to admit they were “surprised” and had no explanation for the inflation. (What one actually learns while obtaining a PhD in economics apparently has nothing to do with understanding money or prices.) Jerome Powell then declared that the Fed would prevent inflation from becoming “entrenched.”

Now, high level economists have changed their tune again with Janet Yellen admitting this week that “We’re likely to see another year in which 12-month inflation numbers remain very uncomfortably high.” Yellen had earlier predicted that CPI inflation would drop to around 3 percent, year over year, by the end of 2022.

Yellen was also careful to attempt political damage control by insinuating that price inflation is a result of uncertainty over the Russia-Ukraine war.

Never mind, of course, that the inflation surge began last year and that January’s CPI inflation rate was already near a 40-year high. The current crop of embargoes and bans on Russian oil imports implemented during March were not drivers of February’s continued inflation surge.

Few members of the public, however, will bother with these details, and this will benefit both the Fed and the administration. As far as the Fed is concerned, the important thing is to never, ever admit that price inflation is really being driven by more than a decade of galloping Fed-fueled monetary expansion (aka money printing). This was done largely at the behest of the White House and Congress to keep interest on the debt low and government spending high.

So, we can expect the administration to portray inflation as “Putin’s fault.” In a Friday speech to Democratic activists, Biden even claimed the high inflation rates are not due to “anything we did.” The tactic will no doubt work to convince many. But it’s unclear how many.

Workers Are Getting Poorer

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To Attack the Root of Evil, Fix the Money | The Libertarian Institute

Posted by M. C. on January 14, 2022

https://libertarianinstitute.org/articles/to-attack-the-root-of-evil-fix-the-money/

by Jp Cortez

After the Consumer Price Index surged last year to its highest level since 1982, politicians are feeling pressure from constituents to do something about it.

Last Monday, President Joe Biden announced $1 billion in grants, loans, and other assistance for small meat producers. Another costly government program will, supposedly, help tame rapidly rising beef and poultry costs.

Four giant companies control 85% of the market for meat—raking in massive profits while families pay higher prices. I’m glad @POTUS is taking steps to create a more competitive beef and poultry industry. We need to break up Big Ag and lower prices. https://t.co/EHQZWaD2du

— Elizabeth Warren (@SenWarren) January 3, 2022

Massachusetts Senator Elizabeth Warren has been on a tear lately, and there is a startling commonality between all these ideas:

Prices at the pump have gone up. Why? Because giant oil companies like @Chevron and @ExxonMobil enjoy doubling their profits. This isn’t about inflation. This is about price gouging for these guys & we need to call them out. pic.twitter.com/kxiQkC2tYa

— Elizabeth Warren (@SenWarren) November 20, 2021

Consolidation in the semiconductor industry is causing shortages and supply chain bottlenecks that increase consumer prices and hurt workers. I’m urging @SecRaimondo to act swiftly to increase competition. https://t.co/Y7Izd6X0Fl

— Elizabeth Warren (@SenWarren) December 17, 2021

This is your brain on fiat monetary systems and central banking: price inflation is caused by everything except for printing loads of new money.

If Senator Warren believes that prices increase because of the greed of price gouging companies, does she believe that when prices fall, it is the result of corporate benevolence?

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And Just Like That, Inflation Is About To Disappear? | ZeroHedge

Posted by M. C. on December 12, 2021

In any case, what we though this summer was just a joke appears to be coming true, because as the BLS has reported, starting next month it will adjust the weights for its Consumer Price Index basket, which will be calculated “based on consumer expenditure data from 2019-2020.” Alas, there is no further detail on this critical topic, although we will take any bet that post-revision reported inflation will drop because, well, “adjustments.”

https://www.zerohedge.com/markets/and-just-inflation-about-disappear

Tyler Durden's Photoby Tyler Durden

Earlier this year, when inflation was still “transitory” two Fed chairs, Powell and Bernanke, made comments which we joked only make sense if the definition of inflation is changed:

*POWELL:FOMC PREPARED TO ADJUST POLICY IF EXPECTATIONS GO BEYOND

by changing definition of PCE and CPI — zerohedge (@zerohedge) July 28, 2021

BERNANKE: COMMODITY PRICES WON’T ADD TO INFLATION GOING FORWARD

Why? Are we changing the definition of CPI again — zerohedge (@zerohedge) August 25, 2021

Sadly, our feeble attempts at humor were not unjustified, and as any economic history buff knows the US dramatically changed how it calculates consumer inflation back in the 1980s, an event extensively covered by AllianceBernstein former chief economist Joseph Carson on this website in the past (see “Consumer Price Inflation: Facts vs. Fiction“) with the most important difference being that while the CPI of the 1970s included house price inflation, the current measure does not. Instead, home price pressures have been swept in the purposefully nebulous Owner-Equivalent Rent which can be whatever politicians wants it to be (there have been other definitional changes, see here, here, here and here for more). Bottom line, however, is that if today’s CPI did include house prices in its measurement, the currently reported inflation numbers for house price inflation would push CPI (and core CPI) to double-digit gains.

Of course, it is politically inconvenient to report true inflation is – just see what happens in any banana republic where society is fed up with runaway inflation. It’s also why politicians on both sides of the aisle are always eager to tweak the definition of inflation ever so slightly (or not so slightly) so it appears to be less than it truly is. After all, for them masking reality is a matter of political survival.

In any case, what we though this summer was just a joke appears to be coming true, because as the BLS has reported, starting next month it will adjust the weights for its Consumer Price Index basket, which will be calculated “based on consumer expenditure data from 2019-2020.” Alas, there is no further detail on this critical topic, although we will take any bet that post-revision reported inflation will drop because, well, “adjustments.”

In the same press release, we also read that “the BLS considered interventions, but decided to maintain normal procedures”… whatever those are. Said otherwise, the BLS may not be “intervening” for now, but when the inflationary rubber hits the road next year with the midterms coming up fast and Dems ratings still in the dumps, we doubt that the BLS will have any qualms to “intervene.”

Incidentally, this “update” may explain the conviction behind Biden’s statement today: in a statement after the blistering hot CPI report came out…

… Joe Biden said that despite experiencing the most rapid inflation in almost 40 years in November, U.S. price increases are slowing, in particular for gasoline and cars.

“Today’s numbers reflect the pressures that economies around the world are facing as we emerge from a global pandemic — prices are rising… But developments in the weeks after these data were collected last month show that price and cost increase are slowing, although not as quickly as we’d like,” he said. Biden’s chief of staff Ronald Klain chimed in too:

We’ve made progress, but we’ve got to get prices down, and people have to feel the progress at their kitchen tables.https://t.co/YH102YVlQp — Ronald Klain (@WHCOS) December 10, 2021

Well, all that prices needs to slow “as quickly as we’d like” at least in government reports such as the CPI, is for the BLS to give them a gentle nudge lower.

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Price Inflation Hits a 31-Year High as Janet Yellen Insists It’s No Big Deal | Mises Wire

Posted by M. C. on November 11, 2021

Nonetheless, it is entirely possible that inflation rates could quickly turn downward again in coming months. That could occur if recession sets in with businesses and households unable to pay off their debts. If that happens, monetary deflation will set in and demand will decline, leading to a real drop in price inflation. Of course, that won’t exactly do wonders for real wages, either.

https://mises.org/wire/price-inflation-hits-31-year-high-janet-yellen-insists-its-no-big-deal

Ryan McMaken

The Bureau of Labor Statistics reported Wednesday morning that prices rose 6.2% on a year-over-year basis in October. That’s the highest YOY rate since December 1990 when the CPI was also up 6.2 percent.

October’s rate was up from 5.3 percent in September, and remains part of a surge in the index since February 2021 when year-over-year growth was still muted at 1.6 percent.

cpi

Not surprisingly, producer prices surged in October as well. The producer price index for commodities in October was up 22.2 percent, year over year, reaching a 48-year high. We must go back to November 1974 to find a higher PPI increase—at 23.4 percent.

Asset price inflation has naturally continued unabated at well, with the result being rising housing costs. In addition to the CPI’s 31-year high, home prices in the second quarter surged near to a 42-year high. According to the Federal Housing Finance Agency’s home price index, home price growth reached 11.9 percent in the second quarter of this year. Since 1979, only the second quarter of 2005—also with 11.9 percent growth—showed home-price growth as high.  

This is troubling information indeed, given that average real weekly earnings have turned negative this year, with inflation-adjusted earnings down 0.5 percent from September to October.  It is increasingly clear that wages are not keeping up with rising prices for a great many Americans.

None of this means policymakers will diagnose the problem properly, however. We should expect the discussion around inflation in Washington to keep missing the point and denying any connection to the central bank or to monetary inflation. 

For example, rising prices are so obvious now that not even the administration can ignore them anymore. Today, the White House released a statement in which President Biden admitted: “… today’s report shows an increase over last month. Inflation hurts Americans pocketbooks”

Yet the administration continues to be very much in denial about the causes of price inflation. The Biden statement continues:

I have directed my National Economic Council to pursue means to try to further reduce these costs, and have asked the Federal Trade Commission to strike back at any market manipulation or price gouging in this sector.

As if “price gouging” were the cause of nationwide price inflation!

If it were “gouging,” we’d be seeing increases only in the areas where so-called gouging is taking place. Moreover, that would mean a decline in spending—and thus price deflation—in areas where the gouging isn’t taking place. The overall effect would be price stability.

Similarly, the administration has also tried to blame inflation on a lack of childcare.  In an incoherent series of non sequiturs, Secretary of Transportation Peter Buttigieg this week claimed that paid family leave is “part of [the administration’s] tool kit to fight inflation.” Buttigieg simultaneously claimed that paid family leave means more people can take time off from work, and yet this somehow will also translate into more people going back to work. While it’s true more workers could help temper—to some extent—upward pressure on prices, more paid family leave would contribute nothing to this “solution” to price inflation.  Rather, it’s apparent the memo went out at the administration that every policy must now be tied into some kind of plan to fight inflation—no matter how tenuous the connection.

Yet we should expect more of this sort of blind grasping at excuses for our economic malaise as time goes on. The same strategy was used by the Ford administration in the dark days of the mid1970s and the “Whip Inflation Now” campaign. The administration then claimed that the American public should fight inflation through strategies such as planting a vegetable garden at home.

Then, as now, the regime refused to admit that rising monetary inflation had anything to do with rising prices. Instead, we’re told it must be a lack of daycare services or “price gouging.”

A Second Strategy: Total Denial

But some in the administration are sticking to their narrative that there’s nothing at all to see here. Janet Yellen, for example, declared on Tuesday that “I’d expect price increases to level off, and we’ll go back to inflation that’s closer to the 2% that we consider normal.” She insists the Fed is very much in control of the situation and won’t allow 1970’s style inflation to occur. 

What Yellen fails to mention is that even if inflation rates of, say, four to six percent, last only a year, middle class workers won’t make up these losses later just because inflation falls again at some point to “to the 2% that we consider normal.” After all, this year’s declines in real average weekly wages means real hardship for many people, even if Janet Yellen will be just fine with her private driver shuttling her from her luxury home to opulent cocktail parties all the while.

But not everyone is as uninterested in the effects of inflation as Janet Yellen. As MSNBC reports:  

“For now, inflation is going to continue to run above very solid wage growth,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council during the Trump administration. “This is why when you look at consumer confidence, it’s really taking a beating. Households do not like the inflation story, and rightly so.”

For at least one MSNBC columnist, though, people don’t know how good they have it. On Monday, James Surowiecki insisted everyone is better off and discussion of inflation amounts to little more than fear mongering. He writes:

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Why the Fed Is So Desperate to Hide Price Inflation

Posted by M. C. on September 9, 2021

Otherwise, as noted earlier, rising interest rates would collapse the debt pyramid and result in a collapse in output and employment. It is, therefore, no wonder that the Fed is doing whatever it can to hide the inflationary consequences of its policy from the public:

Thorsten Polleit

Speaking at the Jackson Hole meeting on August 27, 2021, Federal Reserve (Fed) chairman Jerome J. Powell indicated that he supported “tapering” toward the end of this year and hastened to add that interest rate hikes are still a long way off. The term “tapering” means that the central bank reduces its monthly purchases of bonds and slows down the monthly increase in the quantity of money accordingly. In other words, even with tapering, the Fed will still churn out newly printed US dollar balances, but to a lesser extent than before; that is, it will still cause monetary inflation, but less than before. 

Financial markets were not alarmed by the Fed’s announcement that it might take its foot off the accelerator pedal a little: ten-year US Treasury yields are still trading at a relatively low level of 1.3 percent, the S&P 500 stock index hovers around record highs. Could it be that investors do not believe in the Fed’s suggestion that tapering will begin soon? Or is tapering of much lower importance for financial market asset prices and economic activity going forward than we think? Well, I believe the second question nails it. To understand this, we need to point out that the Fed has put a “safety net” under financial markets.

As a result of the politically dictated lockdown crisis in early 2020, investors feared a collapse of the economic and financial system. Credit markets, in particular, went wild. Borrowing costs skyrocketed as risk premiums rose drastically. Market liquidity dried up, putting great pressure on borrowers in need of funding. It wasn’t long before the Fed said it would underwrite the credit market, that it would open the monetary spigots and issue all the money needed to fund government agencies, banks, hedge funds, and businesses. The Fed’s announcement did what it was supposed to do: credit markets calmed down. Credit started flowing again; system failure was prevented.

tp

In fact, the Fed’s creation of a safety net is nothing new. It is perhaps better known as the “Greenspan put.” During the 1987 stock market crash, then Fed chairman Alan Greenspan lowered interest rates drastically to help stock prices recover—and thus set a precedent that the Fed would come to rescue in financial crises. (The term “put” describes an option which gives its holder the right, but not the obligation, to sell the underlying asset at a predetermined price within a specified time frame. However, the term “safety net” might be more appropriate than “put” in this context, as investors don’t have to pay for the Fed’s support and fear an expiry date.)

The truth is that the US dollar fiat money system now depends more than ever on the Fed to provide commercial banks with sufficient base money. Given the excessively high level of debt in the system, the Fed must also do its best to keep market interest rates artificially low. To achieve this, the Fed can lower its short-term funding rate, which determines banks’ funding costs and thus bank loan interest rates (although the latter connection might be loose). Or it can buy bonds: by influencing bond prices, the central bank influences bond yields, and given its monopoly status, the Fed can print up the dollars it needs at any point in time.

Or the Fed can make it clear to investors that it is ready to fight any form of crisis, that it will bail out the system “no matter the cost,” so to speak. Suppose such a promise is considered credible from the financial market community’s point of view. In that case, interest rates and risk premiums will miraculously remain low without any bond purchases on the part of the Fed. And it is by no means an exaggeration to say that putting a safety net under the system has become perhaps the most powerful policy tool in the Fed’s bag of tricks. Largely hidden from the public eye, it allows the Fed to keep the fiat money system afloat.

The critical factor in all this is the interest rate. As the Austrian monetary business cycle theory explains, artificially lowering the interest rate sets a boom in motion, which turns to bust if the interest rate rises. And the longer the central bank succeeds in pushing down the interest rate, the longer it can sustain the boom. This explains why the Fed is so keen to dispel the notion of hiking interest rates any time soon. Tapering would not necessarily result in an immediate upward pressure on interest rates—if investors willingly buy the bonds the Fed is no longer willing to buy, and/or if the bond supply declines.

But is it likely that investors will remain on the buy side? On the one hand, they have a good reason to keep buying bonds: they can be sure that in times of crisis, they will have the opportunity to sell them to the Fed at an attractive price; and that any bond price decline will be short lived, as the Fed will correct it quickly. On the other hand, however, investors demand a positive real interest rate on their investment. Smart money will rush to the exit if nominal interest rates are persistently too low and expected inflation persistently too high. The ensuing sell-off in the bond market would force the Fed to intervene to prevent interest rates from rising.

Otherwise, as noted earlier, rising interest rates would collapse the debt pyramid and result in a collapse in output and employment. It is, therefore, no wonder that the Fed is doing whatever it can to hide the inflationary consequences of its policy from the public: the steep rise in consumer goods price inflation is being dismissed as only “temporary”; asset price inflation is said to be outside the policy mandate, and the impression is given that increases in stock, housing, and real estate prices do not represent inflation. Meanwhile, the increase in the money supply—which is the root cause of goods price inflation—is barely mentioned.

However, once people begin to lose confidence in the Fed’s willingness and ability to keep goods price inflation low, the “safety net trickery” reaches a crossroads. If the Fed then decides to keep interest rates artificially low, it will have to monetize growing amounts of debt and issue ever-larger amounts of money, which, in turn, will drive up goods price inflation and intensify the bond sell-off: a downward spiral begins, leading to a possibly severe devaluation of the currency. If the Fed prioritizes lowering inflation, it must raise interest rates and reign in money supply growth. This will most likely trigger a rather painful recession-depression, potentially the biggest of its kind in history.

Against this backdrop, it is difficult to see how we could escape the debasement of the US dollar and the recession. It is likely that high, perhaps very high, inflation will come first, followed by a deep slump. For inflation is typically seen as the lesser of two evils: rulers and the ruled would rather new money be issued to prevent a crisis over allowing businesses to fail and unemployment to surge dramatically—at least in an environment where people still consider inflation to be relatively low. There is a limit to the central bank’s machinations, though. It is reached when people start distrusting the central bank’s currency and dumping it because they expect goods price inflation to spin out of control.

But until this limit is reached, the central bank still has quite some leeway to continue its inflationary policy and increase the damage: debasing the purchasing power of money, increasing overconsumption and malinvestment, and making big government even bigger, effectively creating a socialist tyranny if not stopped at some point. So, better stop it. If we wish to do so, Ludwig von Mises (1881–1973) tells us how: “The belief that a sound monetary system can once again be attained without making substantial changes in economic policy is a serious error. What is needed first and foremost is to renounce all inflationist fallacies. This renunciation cannot last, however, if it is not firmly grounded on a full and complete divorce of ideology from all imperialist, militarist, protectionist, statist, and socialist ideas.”1

  • 1. Ludwig von Mises, “Stabilization of the Monetary Unit–from the Viewpoint of Theory (1923),” in The Cause of the Economic Crisis. And Other Essays before and after the Great Depression, edited by Percy L. Greaves Jr. (Auburn, AL: Ludwig von Mises Institute, 2006), p. 44, appendix.

Author:

Thorsten Polleit

Dr. Thorsten Polleit is Chief Economist of Degussa and Honorary Professor at the University of Bayreuth. He also acts as an investment advisor.

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This Is a Sign that Price Inflation Will Soon Get Worse | Mises Wire

Posted by M. C. on September 4, 2021

Slowly, but surely, the public began to realize: “We have been waiting for a return to the good old days and a fall of prices back to 1914. But prices have been steadily increasing. So it looks as if there will be no return to the good old days. Prices will not fall; in fact, they will probably keep going up.” As this psychology takes hold, the public’s thinking in Phase I changes into that of Phase II: “Prices will keep going up, instead of going down. Therefore, I know in my heart that prices will be higher next year.” The public’s deflationary expectations have been superseded by inflationary ones.

https://mises.org/wire/sign-price-inflation-will-soon-get-worse

Connor Mortell

Recently here on Mises Wire, Sammy Cartagena wrote a brilliant article demonstrating that Two Percent Inflation Is a Lot Worse Than You Think. In it, he demonstrates that the manageable 2 percent inflation year over year we all have gotten used to is a whole lot less manageable than we tend to think. But in it, he also cited explaining that “over 23 percent of all dollars in existence were created in 2020 alone.” From that he explains that while future inflation is important, he is focused on past inflation for the sake of his article, which is where these two articles diverge because this will be questioning future inflation. Anyone paying attention has seen that there has obviously been inflation this past year whether through price increases or more subtle ways to sneak inflation into the economy. However, when we look at the massive spending bills and the aforementioned fact that over 23% of dollars have just recently been ushered into existence, it leaves many asking why has there not been proportionally drastic inflation?

The major piece that is holding back even more inflation than we’ve already seen is a public expectation of a return to normal. The economy is exceedingly complicated and there are countless causal factors effecting this so I cannot say this is the only reason, but we can turn to The Mystery of Banking where we see Murray Rothbard go as far as claiming that “Public expectation of future price levels” is far and away the most important determinant of the demand for money. Rothbard goes on to cite his intellectual predecessor – Ludwig von Mises – to explain just how strongly expectations played a role in the German hyperinflation in 1923:

The German hyperinflation had begun during World War I, when the Germans, like most of the warring nations, inflated their money supply to pay for the war effort and found themselves forced to go off the gold standard and to make their paper currency irredeemable. The money supply in warring countries would double or triple. But in what Mises saw to be Phase I of a typical inflation, prices did not rise nearly proportionately to the money supply. If M in a country triples, why would prices go up by much less? Because of the psychology of the average of the average German, who thought to himself as follows: “I know that prices are much higher now than they were in the good old days before 1914. But that’s because of wartime, and because all goods are scarce due to diversion of resources to the war effort. When the war is over, things will get back to normal, and prices will fall back to 1914 levels.” In other words, the German public originally had strong deflationary expectations. Much of the new money was therefore added to cash balances and the Germans’ demand for money rose. In short, while M increased a great deal, the demand for money also rose and thereby offset some of the inflationary impact on prices.

As Rothbard explains, prices not rising in proportion to a radical increase in the money supply is not only understandable, it is actually to be expected. Sure, this current situation is not a wartime economy, however, as far as Rothbard’s explanation of the psychology of the average person goes, it is not all too different from the expectations during the war. Today the psychology of the average American leads to him thinking to himself “I know that prices are much higher now than they were in the good old days before 2020. But that’s because of the pandemic, and because all goods are scarce due to the unemployment from people who had to stay home during this dangerous time. When the pandemic is over, things will get back to normal, and prices will fall back to 2019 levels.” The problem with this expectation is that it cannot last forever. As Rothbard explains

Slowly, but surely, the public began to realize: “We have been waiting for a return to the good old days and a fall of prices back to 1914. But prices have been steadily increasing. So it looks as if there will be no return to the good old days. Prices will not fall; in fact, they will probably keep going up.” As this psychology takes hold, the public’s thinking in Phase I changes into that of Phase II: “Prices will keep going up, instead of going down. Therefore, I know in my heart that prices will be higher next year.” The public’s deflationary expectations have been superseded by inflationary ones.

Rothbard explains that these new expectations will intensify the inflation rather than holding it back. Rothbard also claims that there is no way of knowing when these expectations will finally shift because so many cultural, technological, geographical, and other factors affect any given population. As a result, we unfortunately can’t say when modern Americans will realize that prices are not headed back to their pre-pandemic levels and start having intensifying expectations. But however long it does take, the last point that we have to remember from Rothbard is his claim that “When expectations tip decisively over from deflationary, or steady, to inflationary, the economy enters a danger zone. The crucial question is how the government and its monetary authorities are going to react to the new situation.” While it is too late to not have created all that new money supply, when the day does come that we enter that danger zone, it is not too late for us to react appropriately and avoid that final phase III of hyperinflation but rather allow for a healthy deflationary bust allowing the economy to recover as it so desperately needs. Author:

Connor Mortell

Connor Mortell graduated from Texas Christian University with a BBA in finance, minoring in Chinese language and culture. After graduation he worked as a legislative aide in the Florida House of Representatives for just shy of two years. Currently he is an MBA student at Florida State University. As well he will be attending Mises University in summer 2021.

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EconomicPolicyJournal.com: 7 Product Categories Being Slammed by Price Inflation

Posted by M. C. on May 22, 2021

https://www.economicpolicyjournal.com/2021/05/7-product-categories-being-slammed-by.html

The cost of grocery items has climbed 2.4% overall in the last year, but the jump in retail meat prices has been much more dramatic. Compared to April 2020, pork prices are up 11%, bacon prices are up 16.3%, and beef prices are up 4.8%. Poultry prices are 11% higher than last year. The price for wings, which hit a record $2.92 per pound is 180% higher than they were in early 2020. 

After hitting historic lows in 2020, the average price of a gallon of gasoline in the U.S. has risen above $3 for the first time since 2014, according to the AAA.

House price bids are coming in above the asking price, sight unseen. The average house is up 33.9% on a year-on-year basis.

The price for lumber has soared by 377% in the last year, adding as much as $36,000 to the price of a newly built home.

 Retail prices for electronics have recently started to climb, too, led by the price of big screen TVs, which are 30% more expensive than they were last year. 

Used cars and truck prices increased by 10% just last month, and are up 21% over the last 12 months.

The price of renting a car was up 16.2% last month.

It is only the beginning folks, there is much more to come, especially if the Federal Reserve continues its mad money printing.   –RW
(via LifeHacker)

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EconomicPolicyJournal.com: Now, The New York Times is Warning About Coming Price Inflation

Posted by M. C. on March 24, 2021

Now, as a sidebar, comes the woke cultural-Marxist moment in the Sahm essay which is apparently required in any opinion piece these days at the Times:

The Fed is still learning. In the late 2010s, I helped with some of that introspection. We asked ourselves whether we were producing our best work or if we were succumbing to groupthink. We grappled with why we missed the 2008 financial crisis, why we ignored the warning signs and how to do better next time.

Still trying to figure out inflation 111 years later.

https://www.economicpolicyjournal.com/2021/03/now-new-york-times-is-warning-about.html

 The word is obviously out to play down the accelerating price inflation that is developing. 

Yesterday The New York Times columnist Paul Krugman played down the coming inflation (See: It’s Time to Panic: The Paul Krugman “Don’t Panic” Indicator Just Kicked In).

Now Claudia Sahm, a Times contributing opinion writer who once worked as an economist at the Federal Reserve, is out with a column that claims price inflation is good for lower-income people! 

She starts out with the puff-piece-style claim that Federal Reserve Chairman Jerome Powell and the Federal Reserve Bank staff are simply great:

[W]ith Jerome Powell as the leader of our nation’s central bank. The swift and steady action from the Fed, a commitment to getting people safely back to work and Mr. Powell’s calm-inducing pronouncements have earned him plenty of bipartisan credit. (There’s now even a wide cross-section of progressives who have become fans of his.) That said, Mr. Powell is not the only hero. The long, hard path to get a more worker-friendly Fed was generations in the making.

Then there is this absurd claim to justify coming inflation:

Inflation hawks seldom remind us that wealthy investors are hurt by inflation and lower-income borrowers are helped: For example, paying off a fixed-rate loan is easier when wages and prices rise by, say, 5 percent a year rather than 2 percent. People have more money to pay the debt, and when creditors get their money back, it’s worth less. When framed this way, zealously guarding against any significant uptick in inflation feels less like responsible stewardship and more like a classist double whammy — increased cost of debt and fewer jobs.

First of all, you can’t believe in simple supply and demand economics if you think that price inflation is required to create jobs. Markets clear, even jobs markets.

As for the benefit of fixed-income debt during a period of strong inflation, it is true that there is a benefit for the holders of such debt. But Sahm is very misleading in her phrasing of who benefits. 

“Lower-income” borrowers with fixed debt do benefit but the lowest income debt holders have adjustable-rate debt, not fixed debt. As inflation climbs and interest rates go up, they are squeezed, especially if they are on fixed incomes. And every major corporation in America today has issued massive amounts of fixed-rate corporate debt that will benefit to a much greater extent than a low-income individual.

Now, as a sidebar, comes the woke cultural-Marxist moment in the Sahm essay which is apparently required in any opinion piece these days at the Times:

The Fed is still learning. In the late 2010s, I helped with some of that introspection. We asked ourselves whether we were producing our best work or if we were succumbing to groupthink. We grappled with why we missed the 2008 financial crisis, why we ignored the warning signs and how to do better next time.

Among the fruits of this labor was an analysis conducted in 2015 exploring whether the staff consensus was underestimating how many more jobs the economy could create without sparking too much inflation. We also tried to tackle groupthink by trying to increase diversity among the staff, under Ms. Yellen and later Mr. Powell. And I am heartened by the changes so far. But even today what’s known as the “staff view” looms large, and only a handful of the hundreds of economists at the Federal Reserve Board are Black economists.

And then the Sahm conclusion which falls in line with Krugman to ignore the coming price inflation and warnings about it:

If you think the hawks on television and Twitter are loud now, just wait until they see a temporary uptick in prices. They’ll be deafening. Some are inside the Fed itself and will be voting on its policies. That said, there are also many wonks at the Fed who have spent a decade shoring up technical defenses against outdated inflation fears.

But their words in long-winded memos are not enough. Good intentions are not enough. It’s what the Fed does this year and the next — in the face of inevitable criticism from incredibly powerful voices stuck in the past — that will ultimately matter most.

There you have it another New York Times voice attempting to play down the coming price inflation.

LOL, “outdated inflation fears” as the inflation tsunami is about to hit.

 –RW

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EconomicPolicyJournal.com: Executive Editor of News for Bloomberg Digital: We Need More Monetary Inflation to Fight Price Inflation

Posted by M. C. on February 6, 2021

https://www.economicpolicyjournal.com/2021/02/executive-editor-of-news-for-bloomberg.html

Executive Editor of News for Bloomberg Digital: We Need More Monetary Inflation to Fight Price Inflation

My head is still spinning.

Weisenthal is executive editor of news for Bloomberg Digital, co-anchor of “What’d You Miss?”, Bloomberg Television’s flagship markets program, as well as Bloomberg’s “Odd Lots” podcast.

Some of the things that Weisenthal’s perspective fails to consider:

That pumping more money into an economy means that more money is available to bid for goods, which is upward pressure on prices.

To pump more money into the investment sector results in a distortion of the economy. There will always be a natural tendency to move against the distortion. Thus requiring a continual accelerating amount of money in the investment sector which puts even more upward pressure on prices.

That if you simply stop the money printing, the price inflation will end on its own.

Capitalism is about free markets. It has nothing to do with central bank manipulation of interest rates, higher or lower.

RW

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EconomicPolicyJournal.com: Best Evidence Top Federal Reserve Officials Have No Clue

Posted by M. C. on January 6, 2021

This climb in asset prices will very likely find its way in 2021 to consumer prices and the spike in consumer prices will be well over 2%. In the EPJ Daily Alert, I am forecasting price inflation will easily hit 3% this year and then 5% and possibly 10% within 18 months.

The Fed has no clue.

https://www.economicpolicyjournal.com/2021/01/best-evidence-top-federal-reserve.html

Loretta J. Mester, President and Chief Executive Officer of the Federal Reserve Bank of Cleveland delivered a speech at the Allied Social Science Associations Annual Meeting (via videoconference). Here is her remarkable comment on price inflation in the talk:

I expect this post-vaccination phase of the recovery to continue over the next few years, with growth above trend, declines in the unemployment rate, and gradually rising inflation…Nor would the strengthening in growth I expect to see later this year necessitate a change in our policy stance because I expect that the economy will still be far from our employment and inflation goals…The economy’s intrinsic dynamics suggest that inflation is not going to move up quickly above 2 percent. 

At the same ASSA meeting,  Chicago Federal Reserve President Charles Evans said:

It likely will take years to get average inflation up to 2 percent, which means monetary policy will be accommodative for a long time…The bottom line is that it will take a long time for average inflation to reach 2 percent.

This is the type of thinking going on in the Federal Reserve System.

It is absolutely stunning. They are simply looking at price inflation over recent past years and are making projections based on the recent past that price inflation will not spike above 2%.

This despite the fact that in 2020, the Federal Reserve increased the money supply by $4 trillion (an increase of 25% plus) and that asset prices from housing to the stock market to Bitcoin are soaring because of the massive money pump.

This climb in asset prices will very likely find its way in 2021 to consumer prices and the spike in consumer prices will be well over 2%. In the EPJ Daily Alert, I am forecasting price inflation will easily hit 3% this year and then 5% and possibly 10% within 18 months.

The Fed has no clue. By the end of 2022, I am going to have to update my book, The Fed Flunks: My Speech at the New York Federal Reserve Bank, with a new chapter pointing out the above failure of Federal Reserve officials to recognize the irresponsible money printing that they are now conducting. –RW

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