Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The Most Reliable Measure of Real Consumer Price Inflation?

Economics / Inflation Apr 27, 2011 - 06:46 AM GMT

By: Bill_Bonner

Economics

Best Financial Markets Analysis ArticleWe’ve always wondered why there is so much debate about the rate of inflation. It seems like such a simple thing to track. You go in the store. You buy a box of Wheaties. You write down the price. Next month, you do the same thing. What’s so hard about that?

But what if the box is smaller next month? What if the Wheaties are twice as good? What if you can get the same enjoyment from a box of Wheatie-Puffs at half the price?


What’s the real rate of inflation? It depends on how you figure it. The Labor Department shows consumer price inflation at barely over 2%. John Williams’ ShadowStats puts the figure close to 8%.

We say “close to” and “about” because the numbers are never more than approximations; no point in dressing them up with decimals as though they were precise and reliable.

But comes now MIT University with a project to track prices by monitoring them on the worldwide web. Instead of creating a small sample of prices and checking them periodically, the Billion Prices Project looks at a huge number of prices from all over the web, in real time.

The resulting numbers may not be perfect, but there sure are a lot of them. Using such a huge volume of price information, the Billion Prices Project is probably the most reliable measure of consumer price inflation developed so far.

So, you’re probably wondering… Well, what’s the story? How much consumer price inflation is there?


Over the last 12 months, prices have gone up 3.2%, say professors Alberto Cavallo and Roberto Rigobon, who developed the index.

But get this, the rate of consumer price inflation is speeding up. Annualize the data from the last 3 months and you get 7.4%.

We don’t need to tell you, Dear Reader. If that rate sticks, today’s financial world comes unglued.

By the most recent calculation by the Billion Prices Project, US government bond yields measure only half the rate of consumer price inflation. How could that be? Why would investors buy a bond yielding only half the inflation rate? Are they idiots?

Maybe they are betting that the latest inflation numbers are a fluke. Ben Bernanke said so himself.

“I think the increase in inflation will be transitory,” said the man more responsible for the price hikes than any other living human being.

Mr. Bernanke says gasoline at $4 a gallon…and a box of Wheaties at $5…are features of “global supply and demand conditions.”

Fair enough. Perhaps they are. But what about $1,500 gold? The supply of the yellow metal is barely any greater than it was when it was priced at $1,000 an ounce.

You may say that demand has increased by 50%…but that only introduces a string of other questions. Gold has no uses – other than ornament and money. What happened that would increase demand for it so suddenly? And if something has increased the demand for gold, perhaps that same thing might have affected oil and wheat too.

The feds are insincerely trying to figure it out. They’ve been asked by President Obama himself to look into price increases and report any funny business. Of course, the real funny business is right in plain sight. The Fed has tripled its holdings of private and public debt – and added nearly $2 trillion in extra cash to do it. Most of that money is still frozen in the banking system. But what will happen when things heat up…and it’s multiplied, maybe ten times over? Won’t that cause prices to rise even faster?

Maybe that’s what people are worried about. And to protect themselves, they’re buying tried and true money, traditional money. Because they’re afraid the more modern variety won’t hold up.

“Dollar’s Slide Accelerates,” reports The Wall Street Journal.

As predicted in this space, the feds have failed. Pouring more liquidity onto a saturated marketplace did not work. The economy already had more than enough debt; it didn’t need more.

More debt and dollars did not create a genuine recovery. Instead, they merely drowned millions of ordinary households…

The New York Times has the story:

WASHINGTON – The Federal Reserve ’s experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates.

But most Americans are not feeling the difference, in part because those benefits have been surprisingly small. The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs.

Mr. Bernanke and his supporters say that the purchases have improved economic conditions, all but erasing fears of deflation, a pattern of falling prices that can delay purchases and stall growth. Inflation, which is beneficial in moderation, has climbed closer to healthy levels since the Fed started buying bonds.

“These actions had the expected effects on markets and are thereby providing significant support to job creation and the economy,” Mr. Bernanke said in a February speech, an argument he has repeated frequently.

But growth remains slow, jobs remain scarce, and with the debt purchases scheduled to end in June, the Fed must now decide what comes next.

And now, we’ll make another bold prediction. What happens when the QE2 program expires? Probably nothing…at first. But just wait. The Japanese, as usual, are setting the pace. In the two weeks following the tsunami/nuke crisis, they expanded their central bank balance sheet by two and a half times – adding huge new stockpiles of money for the banking system to draw upon.

The US feds won’t be left behind for long.

Bill Bonner
The Daily Reckoning

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

http://www.lewrockwell.com

    © 2011 Copyright The Daily Reckoning, Bill Bonner - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules