“Stubbornly weak inflation is shaping up as the wild card for U.S. monetary policy makers this year, with top Federal Reserve officials stumped by why it has lingered so low for so long and at odds as to what to do about it. ... inflation has been drifting down for much of the last two years, measuring a feeble 1.1 percent in November by the Fed's preferred gauge ...”
- moneynews.com internet site
Well, I’m perplexed and befuddled. For a couple years now I’ve been reading economic news stories like the above where it is seemingly “accepted” by the mainstream media that the rate of inflation is “low” and contained, and, as this blurb indicates, even alarmingly so.
But I don’t get it. Inflation, to me, is high and going even higher. I base this opinion on the prices of things (goods and services) that I actually buy.
Last week, I did the grocery shopping for the family. I use to go to Publix, but now often go to Wal-Mart (because prices seem to be soaring and I’m trying to save money).
I was floored by the price of a gallon of milk ($5.50). Instead of buying a gallon, I settled for a half gallon at $3.69 (pre 10-percent sales tax too!).
The day before I went to Dairy Queen for lunch. I tried their deluxe 1/4-pound cheeseburger that was $5.39. I usually get the plain double cheeseburger but didn’t this time. It was $2.99. It seems like yesterday I could have gotten this modest-sized tasty burger for under $2.
I actually made a Facebook post expressing my shock and asked my Facebook buddies if they too thought that “prices for just about everything are going way up?”
I got 30 “likes” agreeing with me and about a dozen comments saying this was their experience too. One naysayer (who actually works in the “mainstream media”) disagreed and posted a link to a website that showed the government’s estimates that inflation remains low.
He’s a friend and a smart guy, but he must have missed my point, which I’d stated in my post: Namely, I think the government is playing fast and loose with their inflation statistics (I also think they are doing the same thing with unemployment numbers).
Not only do I sometimes do the shopping for the family, I also pay all the bills for the family. I can’t think of one bill I pay that has gone down or remained the same. Most have not only gone up, but increased by significant amounts. I’m talking here of utilities, car insurance, property insurance, medical co-pays, satellite TV, cell phone, etc.
But groceries take the cake.
Once upon a time and not terribly long ago, I remember being floored when a buggy full of groceries cost $200. Now I’d do a little two step if the “damage” was only $225.
As a voracious reader of economic news, I of course know that there are newfangled ways to calculate “inflation.”
I’ve learned in my reading that the formula for arriving at the inflation rate has been changed numerous times since 1980.
One constant apparently is that the prices of “food and energy” are given less weight in the calculations. To me, this makes no sense as “food and energy” are two of the largest line items in every person’s monthly budget of expenditures.
My political hero Ron Paul has always considered inflation “the cruelest tax of all.”
It is. Federal income tax rates for many Americans are not ridiculously high and are not being increased (yet). Government “fees” of all varieties are being increased, (just like the number of red-light cameras.) One way or another, government will get you ... literally. But income taxes proper are largely constant for most income classes.
What’s scaring people and changing the way we live is the price of everything else we buy. As Ron Paul understands, inflation hits everyone and really affects those on a fixed or low income the most (the rich can better afford price increases).
If inflation is “dangerously low,” why are so many people running out of money earlier and earlier each month?
The answer is we are paying more for just about everything, at the same time wages or incomes (unless you are a Wall Street Banker) have not kept up with the “real” rate of inflation.
I guess the price of some things have not gone up dramatically. Appliances come to mind. Some items of clothes, especially at discount stores.
House prices in Montgomery market seem to be going down, but national reports tell us that real estate prices are rising in many markets. Car prices definitely haven’t come down. In fact, a nice new car (sticker price of around $50,000) costs more than the price of a decent house in many towns and cities in Alabama.
It’s anecdotal, but I read a reader’s comment on a website last night on this topic. He said he’s been in the “building trade” for years and can report that the prices of almost all building materials “have been heading steadily north for some time.”
The cost of everything health and medical related seems to be sky-rocketing, just like the price of higher education. The exception in the medical field is procedures that are deemed optional and thus are not covered by insurance (like laser eye surgery). These prices - influenced by competition and free market forces - are actually going down and have been for a while (there’s a lesson here).
We’ve also certainly had “price inflation” in the stock market in the past two or so years.
One investment category where there has been major deflation is precious metals. For example, the price of silver has plunged 40 percent in the past year!
Some of us are perplexed by this as well. When the government is printing records amount of “fiat” currency and debt amounts are at epic and historic levels, you would think that gold and silver (as insurance against scary times ahead) would be soaring. The opposite has instead happened. (In China and other eastern nations, precious metals are actually being gobbled up at a record pace).
Which brings me to my theory on why inflation statistics might be bogus. Some articles maintain that the government and Fed actually want higher inflation, but do they really?
Think about it. If everyone acknowledges that real prices for real things are going up big-time, soon people and powerful interest groups are going to start hollering for increases in cost of living adjustments that cover the “real “ rate of increase in prices.
Think food stamp recipients (which we have more of than ever), social security recipients (more than ever with more joining the rolls every day) and government retirees who receive pensions (ditto).
If Uncle Sam raised these monthly payments by, say, 5 percent (instead of 1.5 percent), the government would be even broker than it already is.
To do this, government would have to print even more money than it already is. “Monetizing debt” (printing money) is - or should be - inflationary.
So the government has a strong incentive to report that inflation is low or non-existent.
The accepted way to curb/stop inflation is to raise interest rates (which is what Paul Volker at the Fed did during the early years of President Reagan’s administration when inflation was almost 20 percent (back then, it was calculated more correctly IMO).
Aside: using the formulas of 1980, John Williams of www.shadowstats.com says today’s inflation rate would be well above 10 percent.
But the government (or Fed) can’t raise interest rates because it owes trillions of dollars in interest to countries that have bought our treasury bonds. Instead of paying 1 to 3 percent like we are today, we’d be paying - what? - five to 10 percent?
This level of debt service would dwarf all other levels of spending in the federal budget. Rapidly rising interest rates might also send us into a recession if not depression.
Not going to happen.
The answer the powers that be have come up with (in my view) is to lie about inflation (largely by changing the way it is calculated).
The government also - in my opinion anyway - is playing semantics with the unemployment rate, simply choosing not to count people who have “dropped out of the labor force.”
But the press, for some reason, blindly accepts these statistics. We see no cover stories in Time or The New York Times or on the "CBS Evening News" questioning official government numbers.
As I told someone recently, if the mainstream press is a “watchdog” it’s a toy poodle.
Meanwhile, on Facebook, and at water coolers, people are starting to talk.
To save money, I recently cancelled my subscription to USA Today. The nice clerk I talked to asked why.
I explained I just wanted to save money, but I also shared that I didn’t agree with the writers in the paper’s business section who were constantly saying inflation is low.
I pointed out to her that the rack price of USA Today just went from $1 per copy to $2 per copy. This is 100-percent inflation.
Before the publisher made this move, the newspaper physically reduced the size of a page of newsprint (no doubt because paper prices were increasing).
This is another way “inflation” is concealed - sell a product for the same price but reduce the contents or size of the package.
“Ask the person who buys office supplies at USA Today if prices are staying the same,” I told the subscription clerk.
She said she’d pass on my comments.
The high point of my college career was probably the two basic economics courses I took my freshman year at The University of Alabama. One semester I made a B (almost an A), the other an A. I even got a letter from the dean asking me to major in economics.
Instead I decided to save the world by majoring in political science and writing economics columns!
Anyway, I could have sworn that I learned that inflation is an increase in prices (or absent this an increase in money supply). Both events are happening in a glaring way right now. But still, I’m told inflation is non-existent, even too low.
Well, this journalist is actually a skeptic and terribly confused about what constitutes inflation. Maybe I should ask for my father’s tuition money back.
In 1983 I think a semester at UA cost about $750. I’m betting the price has gone up a little bit since then. But this, I’m assured, is not inflation.
***
Bill Rice, Jr. is managing editor of The Montgomery (AL) Independent. He can be reached at:
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