NEWSFLASH: Inflation Hits 17-year High!

To most on this site, this isn't exactly news, as many have been claiming that the price of goods and such have been rising. But now the dead tree press is, in a sense, making it official.

US consumer prices rose by 0.8 per cent in July, twice as fast as expected, damping hopes that falling crude oil prices and the slowing consumer demand would rapidly ease inflationary pressures.

The surprise jump in the consumer price index on a monthly basis was accompanied by an annual increase of 5.6 per cent, which was more than forecast and the largest jump since 1991.

Meanwhile, core prices – excluding food and energy costs – rose by 0.3 per cent, which was also higher than expected, amid sharp increases in the prices of apparel, tobacco and public transportation.

- excerpt from "US inflation at highest since 1991", Financial Times, 2008

One need only go to the grocery store or fill up their gas tank to see where prices have been going. Despite calls of price stabilization or even possible deflation by the folks living in a cloud (aka Larry Kudlow and gang), inflation has made its presence known ever so unslightly each passing month. The government's official figures, using their latest politically-convenient junk math, is 5.6%, while core figures (excluding food and energy costs, rose by .3%. The changes, from month to month was .8% for the official rate, which was far above the expected .4% increase. Year to year change, which many were expecting .2% increase over last year's number, was actually up .3%.

Now, as many of you know, I never was fond with how the government produces those numbers with the present formula. For the uninitiated to my skepticism, the government every so often alters the calculation to make it look as if the situation isn't as bad as it is. Clinton did this, and so has Bush. Yet a website, Shadow Government Statistics, has been compiling the numbers and using the original method. You can pretty much guess that the real rates are much higher.

According to Shadow's site, which has two CPI charts, inflation according to Bush Sr.'s revisions, would be at closer to 9%. What's even more interesting, if one used the formula used back in 1980, inflation would be reported at almost 14%!! Now take either of the three numbers against the backdrop of today's jobless claims and of 450k (higher than the expected 420k estimate) and the fall in unit labor costs and real disposable income.

Lots of charts, I know, but I want you to see how the average working consumer is getting squeezed. Just imagine how folks working on minimum wage are hurting. Now the Federal Reserve is hesitant to raise rates dramatically to combat inflation. The economy is still weak and it is an election year. But it knows, and so do speculators in currency and bonds, that rates eventually will have to go up. If not because of inflation, then for the very least resting on the demand for money by the government for expenditures.

This Friday, Consumer sentiment numbers will be released. I expect the downward trend to continue. Also, on the 29th, Personal Income and Outlays will be published, there is a possibility of an increase on both. I'm paying more closer attention to the expenditure side, if the rate of growth there is higher than the one in income, Americans tend to utilize their credit cards to make up the difference. And also expect the conservatives to play that off as a neutralizer to any inflation worries. Be skeptical here, because the income figures do not include just wages, but other sources; also many folks may have inflation adjustments in their pay packages. Lastly, though lagging, consumer credit for July is released on the 8th of September, I suspect you'll see an increase on this because folks have been substituting credit cards for real wage increases to make up the difference in income and expenses.

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New Deal Democrat has some additional graphs here on inflation in the forum, with statistics.

The only thing that isn't inflating is American's wages or the standard of living they can have.

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