I recently received the following question: Please explain to me how my cost of living can increase by 10-15 percent, grocery bills, fuel, energy, clothing, etc. yet my income only increases about 2-3% which typically matches inflation. I have talked to many people about this and a lot of folks feel the same way, how can inflation only be 2-3% when the cost of living keeps going up 4-5 times that number. I am a college student, but only in my first few years so please explain this in basic terms so that I may understand. Thank you tremendously, Jessica This is a common question-- often, it is phrased as "What is the real inflation rate? Who do I believe?" … [Read more...]
Who Does Inflation Hurt Most?
Who does inflation help and who does inflation hurt? When we first think of inflation we assume that it will affect all people equally. After all if everyone is using the same dollars wouldn't everyone be affected equally? The fact of course is that everyone isn't affected equally. Our second assumption might be that the poor would be hurt the worst because they earn minimum wage and everything they buy is getting more expensive. However, if the minimum wage is indexed to inflation they would about break even. So interestingly if the minimum wage earners are also deep in debt inflation actually helps them. The reason for this is that debtors borrow valuable money and the number of … [Read more...]
Bureau of Labor Statistics Changes CPI
The Bureau of Labor Statistics (BLS) made changes of historical proportions this month by changing how the Consumer Price Index is reported. For the first time in history the BLS has begun reporting the Consumer Price Index to three decimal points. Their official statement is as follows: "Effective with this release, index levels are now published to three decimal places. Percent changes based on these three-decimal place indexes will continue to be published to one decimal place. " So for January 2007 the CPI-U index is now 202.416 rather than 202.4 but their official inflation rate is still 2.1% rather than the 2.08% that we calculate it out to. While I applaud the higher level … [Read more...]
Inflation Rises — But no one notices?
In October 2006 the annual inflation rate (CPI-U) was 1.31% and it was 50% higher at 1.97% in November. Yet on the same day the data was released Yahoo Financial News reported in an article entitled "Stocks Rise on Inflation Data"that Inflation was flat. Their exact words were "The Labor Department said consumer prices were flat in November rather than up 0.2 percent as analysts had expected. Core inflation, which excludes volatile food and energy costs, was also unchanged." How can a 50% increase in the inflation rate be considered "flat"? … [Read more...]
Inflation Falls by Half – As Hurricane Katrina Effects Wear Off
At 2.06% September's Annual Inflation rate came in at almost exactly half of the 4.15% Annual rate that existed only two months earlier in July. But does that mean that all of our inflation worries are over, the FED’s tightening has worked and all is right with the world? Not Hardly! I certainly wish we were reentering the days of low inflation, low interest rates and a recovering economy. But that is not the case this month. What we have is a simple rebound effect from… believe it or not… Hurricane Katrina. It is hard to believe but the one year anniversary of Hurricane Katrina has passed. With it’s passing we have the spike in prices that it caused passing too. The interesting … [Read more...]
Protect Yourself From Inflation
Inflation Warning!!! How do you protect yourself now? In a recent article, I discussed how Gold was not strictly an inflation hedge but more a crisis hedge against worry of all sorts. See How has Gold fared as an Inflation hedge? In another article, How the Iraq War will affect the U.S. economy, I discussed how a wartime economy almost guarantees future inflation. So naturally several readers wrote to ask, “What is the best way to protect against inflation?” … [Read more...]
Inflation and the Iraq War
Inflation Warning!!! Inflation is already "baked into the cake" You need to protect yourself now! Wars almost by definition are inflationary. This has been true since almost the beginning of time. Inflation is determined by the quantity of goods vs. the available money supply. See The Definition of Inflation The very nature of War results in the destruction of goods. But in normal times money is spent to produce goods which makes the world a richer place. During a war, however, things are produced but... they are not productive things but destructive. The money is spent to destroy things. Often this is combined with an increase in the money supply in order to pay for the … [Read more...]
Inflation similarities between the 2000s and the 1970s
"even though we have not seen the volatility of the 70's we are certainly traveling in the same direction." In the 70s, gold spiked to over $800, Inflation rates were over 14%, OPEC limited the supply of Oil, there were wars in the Middle East and the U.S. economy was a wreck. In the 2000s, Gold has doubled from $250 and ounce to over $500, inflation has doubled from 2% in 2002 to over 4% in 2005, Oil supply is maxed out, the decade began with a recession... is there any chance that we are returning to the 70s? Recently I was asked, whether I saw any similarities between the 1970's and the current decade. And that got me to thinking. If you remember the 70's culminated in a double digit … [Read more...]
Goodbye M3 – What is the Government hiding?
by Tim McMahon, Editor I'm surprised we haven't heard much in the news about this but as of March 23rd 2006 the government will no longer be publishing the M3 money supply data. Most people probably say "Who Cares?" Right? But you should care! And here's why: "The Federal Reserve tracks and publishes the money supply measured three different ways-- M1, M2, and M3. These three money supply measures track slightly different views of the money supply. The most restrictive, M1, only measures the most liquid forms of money; it is limited to currency actually in the hands of the public. This includes travelers checks, demand deposits (checking accounts), and other deposits against … [Read more...]
Inflation, Oil and the Environment
I recently received a great question from a 6th Grader on Inflation, Gas Prices and the environment all rolled into one. It isn't often that 6th graders think about these issues so I would like to share my response with you... To whom it may concern, My name is Sam and I am a 6th grade student at (deleted) Middle School. I love traveling. Whenever I go places I see lots and lots of poverty. I think to myself why? Than I look ahead of me and see the outrage sky high prices for food, gas and many other things. You may be wondering why I’m telling you this .I’m doing a project on one of the things that you know a ton about. My subject is inflation of consumer and gas prices. As I think … [Read more...]
