Wrong on Inflation!

Gee, with everything costing more these days, its a welcome relief that
inflation is so low; Otherwise, we’d really be in trouble!

That was my response to the ongoing debate at RM about inflation versus deflation. I respectfully suggested those gentlemen consider the following: 

A 4 year chart CRB
Index
. Note that energy, according to Moore Research, is about 17.6%% of
the CRB.

Consider the importance of Copper as an industrial metal: Copper
chart

But its not just energy and metals: A chart of education costs, particularly
books, Tuition
and Fees
;

The Home
Affordability Index
— comprised of the primary expenses of owning a Home,
including purchase price, mortgage rates, insurance, property taxes, and
maintenance — has reached a 14 year low.

Further, may I suggest that you speak to several people you know personally
(within this country), and ask them, if generally, they are paying more or less
for the goods and services they buy. (Then explain to them why they are wrong).

I will point out the one area where inflation is decidely not making its
presence felt: Wages. Unfortunately, in a country where spending is 70% of the
economy, this is hardly a good thing.

Lastly, I have heard through the grapevine that Gold at 18 year highs might
actually have something to do with inflation; But at this point, its merely a
rumor

I think these guys are very wrong on this. Thanks to them, I am going to have to
take time out of my busy day to pen a column explaining what inflation actually
is, why its bad for the economy, and how we can easily measure it.

Are we sick of all this inflation chatter yet?

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What's been said:

Discussions found on the web:
  1. frumiousb commented on Oct 20

    Not yet. Looking forward to your column on the subject.

  2. henri commented on Oct 20

    I agree with you on inflation. But you are missing one part. There are a lot of price which are deflating, from tech to travel and everything you can buy from China, not to mention communication (Skype). This is usual during globalization boom like in the 1871-1945 period. Please have a look at this research for more on this.
    http://www.hoisingtonmgt.com/HIM2005Q2NP.pdf

  3. stockman commented on Oct 20

    Globalization is both good and bad for inflation and standard of living.

    globalization=higher materials and energy demand/prices (inflation)
    globalization=higher mfg capacity as cheap labor is utilized in developing countries (disinflation)
    globalization=lower mfg goods prices for consuming/developed countries (better standard of living)
    globalization=lower job growth/wages in developed countries as mfg iand services are shifted (lower standard of living)

    Politically the developed countries have a problem- they will be successful in slowing domestic growth but lower materials and energy will only happen with a hard landing. More likely the Fed is forced to follow Brits lead and back off before having a significant impact on the CRB. Implications for the Dollar ;-( and for gold :-)

    Once the slowdown is clear and re is retreating the fed will also retreat aggressively as necessary. They showed after 9/11 that they will err on the side of inflation risk rather than risk the Japan deflation path.

  4. Chad K commented on Oct 20

    They’re pobably right about most individual items costing the same… but then, when some people are faced with a decision (Iron Kids for $3 or elCheapo for $.99)… and it will affect their ability to pay for their addictions or needs… they’re going to move to elCheapo. Maybe a minor bout with inflation here will help the average consumer learn to save more.

  5. erikpupo commented on Oct 21

    As someone who works in tech, this is common. Technology deflates normally and deflates other things, due to rapid change in product cycles and also due to its effect on other potential inflationary items.

    Technology deflates a lot of things; I would argue that it has helped keep inflation low up until the last few years. Whats scary is that technology simply cannot control or keep up with many of the inflationary problems that are popping up, because technology cannot control credit flow nor can it solve deficit issues.

  6. Bonddad commented on Oct 21

    The CPI does not include the actual appreciation in home prices, nor does it have a health insurance index.

    They use an equivalent rent for housing. The problem is rents are depressed because of overbuilding caused by the housing bubble.

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