Friday, August 1, 2008

Inflation revisited

From the 04 August 2008 Greater Niagara Newspapers
By Bob Confer

Back in November of 2007 I wrote a column about the fallacies of the government’s inflation statistics. In it, I clearly detailed how Uncle Sam underreports inflation and why indicators like the Consumer Price Index (CPI) and the Personal Consumption Expenditures Index (PCE) can only be perceived as lies. That column, one that didn’t seem the least bit controversial, got me an inordinate amount of feedback. I received numerous e-mails, mostly from professors and economists from across the US who were insulted by the column and defended the federal government’s analytical skills.

Well, here it is nine months later, and my analysis is as correct as ever. One cannot help but wonder how academia and the government have evaded the Real World in their studies, for the reality is, inflation exists and it’s at levels that have not been seen in nearly 30 years. I’ll even go as far to say the actual numbers are horrifying.

The most recent statistics have the CPI pegged at 5% since June of 2007 and the PCE at 3.1% for the 12-month period ending in May. If you’ve bought anything recently – food, gas, appliances - you know that those numbers are unrealistic. You’re paying an arm and a leg for things that were once affordable, even a year ago. Certain analysts agree with you. Some financial columnists believe that the annual inflation rate is over 9%. estimates real inflation to be even higher, in excess of 12%.

I tend to agree with the latter. The costs of the inputs to everything we buy have exploded recently and, accordingly, so have the prices for our needs and wants. Corn is not only found in anything and everything in our kitchens, but it is also the primary food for many of our meats and dairy. This necessary grain went from $2.25 a bushel in 2006 to $7 last month. Oil, the lifeblood of our mobile America, was around $65 per barrel in January of 2007. It was at $122 last week. Natural gas is over 50% more expensive than it was last year. Electricity across New York will be 21% more expensive this year. And, lastly, ubiquitous plastic has gone from 57 cents a pound to over 80 cents a pound in under one year. With prices that out of control, it has become impossible for all Americans to enjoy the quality of life that we once had.

The government has plenty to gain from misrepresenting this inflation. Above all, it gives the politicians and bureaucrats the ability to mask their failures. Inflation is caused by a decrease in the purchasing power of a dollar, which means that there’s too much of the green stuff in circulation. By recklessly creating money out of thin air, which it has done since dropping the gold standard, the feds have made our money increasingly worthless. It has only added more fuel to the fire this year with the economic stimulus package and housing bailout (both of them being “free” money). By underreporting the oversupply, the government can justify to an agreeable if not brainwashed populace all of its intrusive market and monetary policies which always do more harm than good.

Regardless of the reason for the federal government’s lies, inflation is real and nothing good can come from it. The very same economists who create and defend the CPI like to tell everyone that we’re not in a recession. Ask around and you’ll find otherwise. See if your family and friends are buying as many items or spending as many discretionary dollars as they used to. They’re not. Ask any business if they’re having a good year. They’re not. Our national economy is a mess. Behind all the bloated revenues on Wall Street (a direct result of higher inputs, not higher sales volumes), corporate profits – as a percentage - are down and the stock market is weakening. Even the once-indestructible automotive and housing markets are in major trouble.

All of that economic malaise has been spawned solely by high inflation, that which is far beyond what the feds say it should be. Because of it, more and more people are becoming unemployed, others are earning less, and everyone to a person is experiencing a lower standard of living. One cannot help but wonder if a depression might be looming. The government will say “no”, but, unfortunately, it’s as real a threat as inflation was and is, and an outcome of it.

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