[emersonbiggins]

--understating by at least 5% (annually) - nothing surprises me anymore.

[MrBill]

You got me? I could not believe those CPI numbers yesterday either? Imported inflation is running at 15.4% year on year. Crude started April at $100 got as high as $120 and closed the month above $110. That should have been a 10% increase and the price of crude is approximately 50% of the price of gasoline, so at least 5% being conservative. I cannot figure out their methodology?

[cube]

$this->bbcode_second_pass_quote('entropyfails', '.')..
But I cannot see people falling for this for 40 years. At some point, someone will say, "Hey! My Social Security check now buys 1 loaf of bread!"
....

[MrBill]

FWIW
$this->bbcode_second_pass_quote('', '
')Five Things You Need to Know: The Inflation Hysteria


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Consumer Inflation Reaching Hysteria Levels

The Consumer Price Index rose a less-than-expected 0.2% after a 0.3% gain in March, the Labor Department reported this morning. But I just bought a loaf of bread for $2.59, a gallon of milk for $4.58 and spent $80 filling up my car with gas. Clearly, all government inflation data must be a conspiratorial lie perpetuated by bureaucrats and politicians intent on keeping us in the dark about our own checkbook balances, right?

Well, far it be it from me to defend bureaucrats and politicians - certainly anyone with a stake in conjuring up votes from Americans has a vested interest in underreporting inflation - but the Consumer Price Index, flawed as it may be, is just a data a red herring, a smokescreen, a distraction. Simply put, increases and decreases in the Consumer Price Index are the least of our "inflation" problems.


2. What Is Inflation?

The real issue is that the vast majority of us don't understand what inflation really is. Now, we do understand what it means when the same trips to the gas pump in the car require more dollars to fund, or when the same amount of groceries require more dollars to carry out of the store, but these are merely symptoms of inflation.

Today we are in the midst of an episode of hysteria over the symptoms of inflation in two areas; food and gasoline. Some decry the lunacy of the Consumer Price Index, a government measure they say purposefully and willfully understates inflation. Some focus on inflation expectations, as if the mere expectation of continued inflationary symptoms was itself inflationary (this is akin to expecting hair growth to fuel hair growth).

What is inflation? It is actually very simple. It is an increase in the quantity of money and bank notes in circulation.

Where is the confusion? Ludwig Von Mises described it this way:

"People today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation."


3. So, What Do We Do Next?

So, the question before us is not, Are food and energy exhibiting symptoms of inflation? The question is what happens as a consequence of those symptoms. And here is where we see a massive disconnect emerging.

Today's "inflation" is illusory. It is the tail end of the Federal Reserve's mirage of economic production; credit creation. The mechanism of transfer between the Federal Reserve and the consumer are banks. (It should be noted that the rise of consumer lending units, and the dependence on them (at least until late last year) by companies in the original business of selling tangible products, companies ranging from General Electric (GE) to General Motors (GM) and at one point even Target (TGT), are illustrative of the efficacy of the credit creation and transfer mechanism between the Federal Reserve and the people). And so the potential for this credit creation to fuel more inflationary symptoms is dependent entirely on the willingness both of banks to lend and consumers to borrow.

That is why this debt crisis is ultimately so deflationary. It chokes off credit at the nozzle while the hose (banks' balance sheets) itself is leaking.

Are you paying more for gas? Yes. Are you paying more for food? Certainly. The question is what are you going to do about it. Our bet is you are not going to borrow and spend more. The consequence of credit creation and a crisis of unproductive debt is deflation. This is not an event; it is a process. Step one is the process of banks unwinding debt. Meanwhile, today's symptomatic
inflation in some high profile categories paves the way for tomorrow's unwinding of debt by consumers. If the unwinding of debt and tightening of credit for corporations is merely a whisper of deflation while symptoms of inflation persist, the unwinding of debt by consumers will be a roar.

[Twilight]

More people at peakoil.com need to read that last piece.

[cube]

$this->bbcode_second_pass_quote('', '
')Five Things You Need to Know: The Inflation Hysteria
*insert list*

[mattduke]

1. Inflation is when the government prints money for warfare and welfare.
2. Hyperinflation is what happens when everyone figures out 1.

[shakespear1]

$this->bbcode_second_pass_code('', 'http://www.financialsense.com/
http://www.itulip.com/ ')

I found a lot of good information there that was not to be found in WSJ or Forbes until things fell apart.

[MrBill]

$this->bbcode_second_pass_quote('', 'O')TTAWA -- Statistics Canada says the rate of increase in prices of goods and services jumped to 1.7 per cent in April, from 1.4 per cent the previous month.

The agency says it was the first time in six months that the overall inflation rate for the country had risen.

As with recent months, costly gasoline was the key contributor to rising inflation as pump prices rose 11.6 percent in April.

Taking fuel prices out of the equation, the inflation rate would have been 1.3 per cent in April.

As well, April saw an increase in the core inflation rate from 1.3 per cent to 1.5 per cent, as recent price cuts at car dealerships moderated.

The Bank of Canada uses core inflation, which excludes volatile items such as energy and fresh fruit and vegetables, to gauge underlying price pressures in the country.

Regionally, Ontario posted the smallest increase in inflation at 1.3 per cent, while prices increased the most in Alberta and Saskatchewan, which recorded a 3.2 per cent annualized rate in April.

[Denny]

[quote="MrBill"] But in any case the practice of seasonally adjusting prices is just tomfoolery!

[\quote]

I guess seasonal adjustments and "core inflation" are the ultimate "asterisk clause" in any numbers. Make it complicated enough and the people will be bamboozled.

[dmtu]

$this->bbcode_second_pass_quote('', 'B')iflation is the state of an economy where the processes of inflation and deflation occur simultaneously. During this period there is a rise in the purchasing prices of commodity items and a fall in the purchasing prices of non-commodity items.

The purchasing price of an item is based on the demand for it and the amount of money in circulation to pay for it.

Biflation is preceded by an overabundance of money placed in circulation within the population by a central bank. Since commodities (such as food, energy,clothing) are essential and are in high demand, the purchase price for them rises due to the increased money available to buy them. This increasing purchase amount is Price Inflation.

One reason is liquidity flees to the safest and most liquid assets. This causes the money supply at upper levels of the pyramid to shrink while the money supply at lower levels of the pyramid expands. This causes deflation as the money supply evaporates away.

Likewise, Biflation is preceded by a decrease in employment within the population. Although there is an increase of money in circulation, fewer people have access to the money to make purchases. As a result, a greater percentage of individual wages is directed toward purchasing commodities and less is utilized for purchasing non-commodity items. Since debt-based assets (such as automobiles, televisions, stocks) are less essential and are in lower demand, the purchase price for them falls due to the decreased money available to buy them. This decreased purchase amount is Price Deflation.


http://en.wikipedia.org/wiki/Biflation

[MrBill]

I have never seen the term biflation before, but it is interesting. I would compare it to fixed and variable costs. Or discretionary and non-discretionary spending. Therefore, I suppose biflation could last until all net income is essentially spent on non-discretionary spending. That is food, energy and shelter.

Currenty in the USA approximately 70% of spending in non-discretionary (incl. healthcare). So that figure could conceivably rise further leaving less and less money in the economy for any discretionary spending. However, we have to assume within that 70% basket of non-discretionary spending that there could and would be a reallocation between food, energy, shelter and healthcare as disposable income fell.

What is that term for earning just enough to feed oneself, so that one can keep working? Minimum subsistance, but I thought there was a name for it? In any case biflation like stagflation is a public policy nightmare.

Ironically, I have been watching some documentaries on the Summer of Love, the '68 May Riots and the fortieth anniversary of those watershed events. As socially liberating as those times must have been I cannot help but get the feeling that the Me Generation tore down the fabric of a conservative society with absolutely zero clue as to what to replace it with, and here we are forty years later with the results. How do you like dem apples? ; - ))

$this->bbcode_second_pass_quote('', 'A')t this point, moderating inflation seems more of a hope than a forecast. By all rights, the credit crisis, closing in on its one-year anniversary, should have constrained inflation: Money and credit are the stuff of which inflation is made. But it hasn't happened yet.

In the minutes of the April 29-30 policy meeting, released yesterday, Fed officials were ever-hopeful once again, expecting ``inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other prices and an easing of pressures on resource utilization.''


1 + 0 = 1


In other words, if only those pesky raw materials prices would stop going up, why the rate of increase in overall goods and services prices would slow!

This is more an arithmetic observation than an economic forecast. If commodity prices stop rising, and all other components of the consumer price index keep to their existing trend, then, yes, the rate of inflation would be lower than it is now.

The prices of commodities, which account for 42 percent of the CPI, rose 4.8 percent in the year ended in April, according to the Bureau of Labor Statistics. Without the jump in food and energy, core commodities rose just 0.1 percent, according to the BLS. So food (up 5 percent) and energy (up 16 percent) are the primary culprits.

At the wholesale level, crude materials prices were up 34 percent in the past year, led by a 52 percent surge in energy. Without food and energy, crude materials prices were up 25 percent, according to the BLS.