Missing the point about inflation - reality versus political correctness

 

A couple of days ago, I wrote an article titled "Inflation: Read the signs all around you, or risk being overwhelmed".  One reader commented:

You've been predicting that MASSIVE inflation is coming SOON for the last decade. How are things different now? What does Hal Lindsey say?

I replied:

Please see the linked articles above, and examine your own grocery bills over the past couple of years.

I rest my case.

His comment bothers me.  The inflation that so many (including myself) have been predicting for so long IS ALREADY HERE - yet people appear blind to it.  They claim that because the warped, twisted, "massaged" official inflation rate isn't changing much, that inflation isn't a major problem.  They ignore the reality that the official rate of inflation isn't worth the paper it's printed on.  It deliberately skews its analysis to favor the lowest possible rate, leaving out so many major factors that it's basically meaningless.

To take just one example, let's look at housing price/cost inflation.  The official inflation rate is far below the actual numbers found by those buying and selling homes.  Wolf Richter pointed out last Tuesday:

House prices soared by 12.0% from a year ago, the biggest increase since February 2006, near the peak of Housing Bubble 1 ... The Case-Shiller Index compares the sales price of a house in the current month to the price of the same house when it sold previously. This “sales pairs method” tracks the amount of dollars it takes to buy the same house over time. Home improvements are included in the methodology. This makes the index the most appropriate measure of house price inflation in the US.

The Consumer Price Index (CPI), on the other hand, tracks the housing inflation component based on rents. The CPI for “Owner’s equivalent rent of residence,” weighing about 25% of the overall CPI, is based on homeowners’ estimates about how much their home would rent for, which ticked up 2.0% from a year ago (green line), compared to house price inflation as measured by the Case-Shiller index (red line):

There's more at the link.

So . . . a 12% increase in housing prices, according to Case-Shiller, versus a 2% increase according to the CPI.  The former's figure is six times higher than the latter's.  Guess who's right?  If you guessed "the CPI", you're living in cloud cuckoo land.  Official figures bear little or no relation to the reality facing homebuyers and -sellers right now:  yet the official rate of inflation blithely ignores that reality.  The same applies to vehicle prices, as we discussed recently.  To put it as simply as possible, the official rate of inflation is completely untrustworthy, and is manipulated to give the most favorable result to the government for its purposes - not to convey facts and economic reality to the consumer.

We've also noted that inflation in the USA at this time is overwhelmingly a currency problem.  We're printing new money like there's no tomorrow, and it's devaluing the existing dollars in everyone's pockets.  I put up a video clip on Wednesday of Peter Schiff discussing this issue, and I'm going to repeat it here.  It's less than two minutes long, but encapsulates the reality of our situation.  If you haven't already watched it, please do so now.  It's important.

Now comes an article from the Foundation for Economic Education titled "Why Your Grocery Bills Are Going Up (And Are Only Expected to Get Bigger)".  The trouble is, the article relies on official inflation figures, and completely ignores the reality that those figures are concocted, manipulated, and entirely untrustworthy.  Apart from that little problem, it's a fine article.

According to the Bureau of Labor Statistics, food prices jumped 3.9 percent in 2020, nearly triple the rate of inflation.

Unfortunately, this trend seems poised to continue. The US Department of Agriculture estimates grocery bills could increase by another 3 percent in 2021, while some experts are betting on even longer-term problems.

“I think food prices are going to continue to increase for probably a good year, year and a half,” warns Phil Lempert, founder of SupermarketGuru.com.

Shoppers are already feeling the crunch. Long Island resident John Kermaj recently told NBC News, “We used to buy this stuff for $30. Now it's $60.”

Again, more at the link.

Note the disconnect.  The Bureau of Labor Statistics (which calculates the "official" CPI) says food prices rose by just 3.9% last year.  A shopper, who counts the dollars leaving his wallet every time he goes to the supermarket, says prices have doubled (although he doesn't say over what period of time).  Who do you believe?  I can tell you right now, based on the contents (or lack thereof) of my own wallet, that the shopper is a darn sight closer to reality than the BLS statisticians.  In fact, if BLS dropped the "L" from its acronym, it'd become a lot more appropriate description of the statistics it produces!

Anyone who trusts the official CPI figures is ignoring reality.  The facts on the ground have long since overtaken the statisticians, who've been instructed to gloss over that reality and make things look good for the government (which wants to restrict legally mandated cost-of-living increases to programs such as Social Security, welfare, pensions, etc.).

Those who ask, "Where is the inflation you've been forecasting?", are ignoring the reality outside their front doors.  I'll be very surprised if the actual overall rate of inflation this year is less than 10%:  in some significant areas of the economy, it may approach or even exceed 20%.  Just look at how fuel prices have risen since the Biden administration took office.  Fuel affects the price of everything that's transported using it - and its cost has skyrocketed since January.  That's just one example.  I provided several others earlier this week.  Follow the links there for more examples, and see for yourself.

The danger of out-of-control inflation is very real right now, because the Biden administration wants to spend trillions of dollars that don't exist on programs that it deems politically necessary.  Add those new trillions of dollars to the trillions already conjured up out of nowhere over the past few years (particularly in COVID-19 relief measures) and the picture is gloomy indeed.  As we noted earlier this year, "The US government, over the past year, printed or electronically created over 40% of all the dollars that have ever existed."

Refer to Peter Schiff's video clip above.  We're undermining the value of our own currency, and sooner or later our trading partners are going to re-value it a whole lot lower than it is now.  When that happens, the price of everything we buy from them (because we have to - we're no longer producing it ourselves) will shoot up, because it'll take a lot more dollars to buy it than it does at present.  Voila - inflation, even perhaps hyperinflation.  It's by no means impossible.  (Read the linked article in the light of what Peter Schiff says above.  The synergy is very clear.)

I can only repeat my warning from earlier this week:

Batten down the economic hatches, folks.  It's going to be a long, hard ride.

Peter