WHAT IS INFLATION?

May 7, 2010

By Jim Deeds

• The direct cause of shrinkage in the size of our wallet or our bank account.
• A monetary flaw that becomes an emotional disorder that destroys our well-being and the entire commerce within our country.
• All of the above.

“No signs of inflation,” CNBC proudly announces daily. Meanwhile, in India food prices are going up over 20% annually, China sees 20 to 50% price increases in luxury housing and condos, while Argentina returns to double-digit consumer price inflation – once again. But, we’re repeatedly told, it won’t happen here!

“Inflation” is a word with a hundred different interpretations, depending upon your personal circumstance and where you live. In America, inflation is only a whisper today, while in India it already defines starvation for millions of people living outside the more prosperous commercial population centers. Interpretation is everything, and often determines reality. In Washington D.C., our government statisticians juggle numbers endlessly with any adjustment possible (like leaving out the rising prices of food and energy) in order to report a happily contrived CPI. And yet, there are other inflation reports in America. Here’s one (they seem serious about their work) that you might not have seen: http://inflation.us/foodinflationspiralingoutofcontrol.html

U.S. Food Inflation Spiraling Out of Control, Fort Lee, N.J., April 22/PRNewswire/ – The National Inflation Association today issued the following food inflation alert to its members.

The Bureau of Labor Statistics (BLS) today released their Producer Price Index (PPI) report for March 2010 and the latest numbers are shocking. Food prices for the month rose by 2.4%. Its sixth consecutive monthly increase and the largest jump in over 26 years. NIA believes that major breakout in food inflation could be imminent, similar to what is currently being experienced in India.

Some of the startling food price increases on a year-over-year basis include fresh and dry vegetables up 56.1%, fresh fruits and melons up 28.8%, eggs for fresh use up 33.6%, pork up 19.1%, beef and veal up 10.7% and dairy products up 9.7%. On October 30th, 2009, NIA predicted that inflation would appear next in food and agriculture, but we never anticipated that it would spiral so far out of control this quickly.

The PPI foreshadows price increases that will later occur in the retail sector. With U-6 unemployment rising last month to 16.9%, many retailers are currently reluctant to pass along rising prices to consumers, but they will soon be forced to do so if they want to avoid reporting huge losses to shareholders.

Food stamp usage in the U.S. has now increased for 14 consecutive months. There are now 39.4 million Americans on food stamps, up 22.4% from one year ago. The U.S. government is now paying out more to Americans in benefits than it collects in taxes. As food inflation continues to surge, our country will soon have no choice but to cut back on food stamps and other entitlement programs.

Most financial experts in the mainstream media are proclaiming that the recession is over and inflation is not a problem in the U.S. Unfortunately, they fail to realize that rising food and gasoline prices accounted for 58% of February’s year-over-year 3.85% rise in retail sales. NIA believes price inflation is beginning to accelerate in many areas of the economy besides food and energy, and all increases in U.S. retail sales this year will be entirely due to inflation.

Answer “C” in our opening section obviously leads to hyperinflation – a word now seen often in America, but seldom defined. Hyperinflation is easy! It happens when people lose total trust in anything “government” (as in Greece today), and in the value of their “stupid” paper money. As emotions take over, everyone races to spend what little “money” they have left “before prices double again – tomorrow.”  Inflation expectations quickly become emotional, and are impossible for even government to stop.

Harry Figgie, in his book, Bankruptcy 1995, related how the entire population of
South American countries could figure out the coming threat of hyperinflation in less than a week’s time. And then, everything changed!

In a recent interview in The Gold Report, John Williams of ShadowStats.com (the most respected honest statistician outside of our government today), said:

“There’s strong evidence that we’re going to see an intensified downturn ahead, but it won’t become a great depression until hyperinflation kicks in. That is because hyperinflation will be very disruptive to the normal flow of commerce and will take you to (lower) levels of activity that we haven’t seen probably in the history of our Republic.”

So, maybe we should look ahead to see what type of inflation we see coming, and prepare accordingly.