Since March 2009, the stocks and commodities have soared – and investors have been thrilled.
While many attribute this rise in valuations to economic recovery, some believe that rising costs are a direct result of the monetary expansion by the Federal Reserve, resulting in price inflation on certain goods, namely those assets such as commodities, which are not considered debt-based (i.e. cars, houses).
The Labor Department reports that prices in the month of March rose across the board:
There was little sign of budding inflation in the report. Excluding volatile food and energy costs, wholesale prices rose by 0.1 percent, matching analysts’ expectations.
Food prices jumped by 2.4 percent in March, the most since January 1984. Vegetable prices soared by more than 49 percent, the most in 15 years. A cold snap wiped out much of Florida’s tomato and other vegetable crops at the beginning of this year.
Gasoline prices rose 2.1 percent, the department said, the fifth rise in six months.
In the past year, wholesale prices are up 6 percent, with much of that increase driven by higher oil and other commodity prices. But the core index, which excludes food and energy, rose only 0.9 percent.
“Today’s report … does not bring any renewed concerns about inflation in the immediate future,” Dan Greenhaus, chief economic strategist at Miller Tabak, wrote in a report to clients.
Low levels of inflation also allow the Federal Reserve to hold down interest rates. The Fed has kept the short-term interest rate it controls at a record low of near zero in an effort to boost the economy.
The core index is up only 0.9% over the last twelve months, but this does not take into account the most important consumption goods in America, gas and food. While core index numbers may be touted as a victory against inflation, it is clear that Americans are spending more precisely where it hurts the most.
If this trend were to continue, and the cost of food were to rise an average of 2.4% per month for the next twelve months, here is how it might look a year from now at the grocery store when purchasing exactly the same items on your shopping list:
Month 1Â Â Â Â Â Â Â Â Â $100.00
Month 2Â Â Â Â Â Â Â Â Â $102.40
Month 3Â Â Â Â Â Â Â Â Â $104.85
Month 6 Â Â Â Â Â Â Â Â $112.56
Month 9 Â Â Â Â Â Â Â Â $118.09
Month 12 Â Â Â Â Â Â $126.79
Thus, one year from now you’ll be paying $126.79 for the same groceries that cost you $100 today, a 26% increase in food prices over the course of a single year – and that’s with inflation “under control.”
Is what we are seeing play out in the market place the biflation we’ve discussed previously?
The term was first introduced by Dr. F. Osborne Brown, a Senior Financial Analyst for the Phoenix Investment Group. During Biflation, there’s a rise in the price of commodity/earnings-based assets (inflation) and a simultaneous fall in the price of debt-based assets (deflation).
It is still difficult to predict exactly which way we will go from here – deflation or inflation. As the referenced article pointed out that food and energy costs are volatile, and they will follow the broader commodities markets. If, for example, a global stock market correction or crash were to take hold, then chances are that energy prices would drop as they did in 2008, unless that global crash is triggered by military action in or around oil producing nations.
Food would also follow the commodity pendulum, and as we saw in 2008, agricultural investments around the world completely collapsed.
If commodities remain tied inversely to the US dollar on the broader trend line, then we may continue to experience price increases as stock prices rise, and as such, if stocks drop significantly, so too should food costs.
There is, of course, the other possibility that global investors will lose confidence in the dollar, and commodities like food, energy, base metals and precious metals will decouple from stock markets and take a completely different trajectory.
The timing of such a decoupling event is difficult to predict, but our view has been that a decoupling in commodities will be apparent in the near future, especially if the US Dollar begins to disintegrate and lose purchasing power.
While the volatility in food and energy costs may swing prices back and forth on a short-term trend, the longer term trend, we believe, is likely to be one of continued price hikes resulting from an eventual dollar devaluation or US debt crisis.
And Chairman Bernanke just said that “there is currently no inflation”.Â
The Fed chairmanÂ is either:
a)Â totally incompetent
b) a liar
(c) totally incompetent and a liar
The correct answer is (c).Â Â Â Â Â Â Â Â
I’ve been writing about this phenomenon for some time on my blog regarding the idea that we’re going to see both inflation and deflation in different areas.Â Never seen the official term of biflation before though, so I’m glad I have an appropriate label!
Actually, it’s even worse than your calcs reflect… Calculating 2.4% increase per month = 1.024 ^ 12 = 1.3292. Â So after 12 months of inflation, that original $100 of groceries would actually cost $132.92! Â Basically a 33% increase!
Well shoot, how the heck did I end up with $126?Â I actually went month by month on that adding 2.4% each month….hmmm
In any case, 25% or 33%… it’s still a ton of money in just a year!!
Mac – looks like you simply took 2.4% * 11 monthly increases, for a 26.4%. Â However, that does not take into account the compounding of the increases… and I also used 12 vs your 11. Â Using the compounding method (which I used) and using 11 months instead of 12 monthly increases, the total would be 29.8% increase vs your 26.4%.
Like you said, either way, that’s a damn big increase!
We will eventually get hit with hyperinflation all at once.Â All it willÂ take isÂ one catalyst to send inflation into the hyper-zone!
Anyone remember the Viet Cong tanks crashing the gates of the presidential palace in Saigon?Â Â Â If hyper-inflation hits the U.S. Obama better have his presidential suite cleaned out and the chopper warmed up whenÂ patriot citizensÂ and theÂ U.S. military storm the gates of the puzzle palace in D.C.Â Â Â Â Â Â Â
Dozens of definitions about inflation and deflation exist and all of these are wrong.
Inflation is a purpose-driven act by Central Bankers to increaseÂ the sale of bank products, namely cash-renting through contracts (aka loans, revolving credit card loans).
When Central Bankers decrease a reserve requirement ratio or decrease interbank lending rates or discount rates, Central Bankers inflate.
Likewise, Central Bankers deflate when they increase reserve requirements or increase the price to rent money from the central banking system — the central bank itself (discount rate) and member banks (interbank lending rate, known as the Fed Funds Rate in the U.S.)
Absent any supply shock, prices can rise when more open contracts have sped up turnover of money. When money enters hands with greater frequency, persons bid up prices on all things because buying frequency has increased.
Another way prices rise is through debasement. During times of economic contraction (recession), the demand for cash increases as the willingness to accept credit decreases. When the Wednesday through Saturday demand average for cash withdrawn from banks (ATMs, tellers)Â increases, the Federal Reserve (Central Bank) orders the U.S. Treasury to print more dollars and mint more coins.
The Federal Reserve pays for the printing and minting, but does not offset the sum of new money with any contractual assets.
The net result is that more cash is chasing existing goods and thus drives up prices.
Right now, we have seen a substantial increase in cash in circulation, but not credit.
Thus, prices are rising, not because of inflation, but because of DEBASEMENT coupled with lower inventories.
Prior to reading this post, I bet many did not know this is exactly how all of this works.
Mac-The statistics you quote above are from the Labor Dept., correct?Â You don’t honestly BELIEVE that those numbers are anywhere close to accurate, do ya?Â Â I would be curious to see what the real numbers are (Â i.e. from Â John Williams at ShadowStats.com)Â because if the gubmint is admitting figures as you show then no doubt the real numbers are much worse.
Pokerface, I couldn’t help but laugh when I read your comment because it is SO true. They tell us 2.4% on food — for all we know food prices went up 10%…
I just checked John Williams’ chart and it turns out that his numbers indicate about 9.9% CPI ! (WOW) A quick calc using the rule of 72 and we’re talking about a 50% loss in purchasing power in 7 years! (If i used the rule of 72 correctly).
Mac-That’s a pretty depressing statistic all right-even more depressing because its probably a best-case scenario.Â We are experiencing this rate of inflation in a Depression with high unemployment and little money in the hands of consumers.Â This inflation rate will most likely increase dramatically over the course of the next several years.Â Â I guess the best one can do in the light of all this is protect your ass-ets with gold, guns , grub etc .Â
This calculation fits closely with my “Pringles Coefficient”.Â Two years ago, a can of Pringles was $0.88 per can.Â Now they’re $2.00.
Go ahead and laugh, but now every time you pass the Pringles at the supermarket, you’ll glance at the price!
I like your “Pringles Coefficiet” its basic, accurate and everyone can relate. When I talk to people I often use my Walmartnomics. In a two week period, in FebuaryÂ the Walmart brand, can of green beans went from .62 to .88 cents, that’s 29.5% in 14 days. Watch the price of salt, sugar and rice. Bi-flation is real and its won’t take a major trigger in world events to bring down theÂ whole house of cards, just hungry people.Â Â
Comments…..This has being going on for years, now that we are getting near the end it’s picking up pace and becoming more noticeable. ” We shall increase their wages, but not in the same ratio as the neccessities tightening the noose around their necks that neither serfdom nor slavery will compare”.Â So the price of neccessities keeps going up, hard assets are crashing and peoples credit is to the max. May be everybody can join the army that seems to be the only industry that’s thriving, or may be go to jail, either way you get free food.
I’m a full-time mom/homemaker.Â Since 2008, eggs have tripled in price from .79 to $2.09 a dozen, t-bone steaks have gone from $4.99 to $11.99 per pound, and canned ravioli has gone from .99 to $1.53 per can.Â My house is worth half what it was worth in 2008.Â
I’m glad everyone else is finally getting clued in to what is happening.Â MaybeÂ mom/homemakers should be interviewed about economic trends instead of the Labor Deptmt.Â
We started stocking up for theÂ coming hyperinflation/interest rate explosion back in 2008.Â
Homemaker advise of the day – get out of cash, stock up on any and all hard assets.Â
Hey guys I like the Walmart Index best, but Sabra KNOWS best. Less than 30 days now until “shoe” number one drops. SecondÂ “shoe” 30 to 90 days thereafter, and “shoe” number three, before the end of the year. Im just saying ….. stock up big time.
Then there is the “boobquake”, so the SHTF very soon. :-)Â
Folks I just had to pass on this pearl from the latest FOMC (Freaking Mountain of Crap) meeting.Â According to Wee Beanie BernankeÂ (chief crapper in residence):Â “The committee…continues to anticipate..subdued inflation trends, and stable inflation expectations…” .Â So see, according to Beanie, it’s all seashells and balloons, unicorns and lollipops from here on!Â Sell your gold, buy Goldman shares and Greek bonds!Â Â Â ;>0Â Â Â Â Yeah right.