The U.S. Department of Labor reported today that the Consumer Price Index or the C.P.I. rose 0.4% on a monthly basis in the month of April. Wall Street was expecting a rise of 0.5% so Bloomberg news reported that the C.P.I. came out lower than expected and that this was a sign that inflation is abating as the economy cools!

One of our problems with the Bloomberg analysis is that the C.P.I. is not a measure of inflation . As we have discussed in the past inflation is the growth of the money supply and rising consumer prices are actually a consequence thereof.

The other problem we have with Bloomberg's analysis is that they only focus on one month's number instead of looking at the recent trend. If one also looks at the last three C.P.I. data it is clear that the annaulised rate is almost at 6% in the last three reported months! The February C.P.I. was 0.6% rise was 0.4%, the March increase was 0.6% and the most recent April number was published today at 0.4% so all one needs to do is add these numbers up divide the total by three and then multiply it by twelve and you come up with a 5.6% annual rate! From Junuary to March the annualised C.P.I. rate was 4.8% as the January monthly rate increased by 0.2%. We find it amazing that Joe Richter, the Bloomberg reporter, can say that today's data is a sign that inflation (consumer prices) is abating !

We feel that if the Federal Reserve should be restricting monetary policy by raising the Fed funds rate from the present rate of 5.25% and not getting ready to cut them as many of the Wall Street pundits are advocating . With the C.P.I. rising at a 5.6% annualised rate and the Fed funds rate at 5.25% it means the Fed is setting a negative real rate target! Or if you were to invest in a 6-month U.S. T-bil at the present 4.7% rate it means that you would be getting a negative return of 0.9% to lend your money to the United States Treasury!

We think it makes a great deal more sense to hold gold and silver in this kind of environment where the Federal Reverve is destroying the dollar!

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

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