For those of you who think inflation hasn’t hit the United States, think again. All one needs to do is visit the grocery store, go to the gas station, or look at the prices of the raw materials used in manufacturing, farming or construction. It’s pretty hard to dispute prices haven’t dramatically risen over the last few years. So why all the confusion about the inflation rate and how it’s affecting prices? The government would like you to believe inflation is under control and right around 3.1% annually, which they consider “modest”, but that isn’t the case at all. It’s actually much higher if you look at the raw data, which is shown below.
Unlike commodity prices, the inflation rate can be disputed. That’s because a formula is used to calculate inflation whereas the price of a product, such as cereal, can be determined by simply looking at the little sticker on the box. The formula used to calculate the overall inflation rate, as determined by the government, is based on a varying “basket of goods and services” that a typical consumer purchases on a regular basis. However, they get to choose which items are in the basket, and which are not. To make the inflation results even more ambiguous, how they determine which price to use for a particular product is a bit odd. That is to say, they don’t go to Walmart, look on the shelf to see what a box of Wheaties sells for, then use that price in their formula. Let me give you an example:
Say they government wants to determine the cost of a steak to use in their core inflation formula. They travel around to 10 “comparable” restaurants and list the prices for a single 8 ounce steak. You’d think they would take the average cost of the 10 steaks and use that price. But that’s not what they do. Instead, they pick the cheapest of the 10 steaks, discard the rest, and use that price in their formula. Slowly, you’re starting to see how the inflation index can be manipulated. And it gets even more bizarre. They are supposed to use goods and services that a typical consumer purchases. So, why do they leave out gasoline, food, oil, and energy prices? Because those items greatly affect the inflationary index.
A vast majority of the average consumer buys gasoline, food and uses electricity every day. These commodities have seen huge increases in price over a very short period of time, and if included in the inflationary formula, would certainly produce a different rate of inflation. As you’ll see below, the real inflation rate must be higher than what they are saying. much higher than the 3.1% they selling the American People.
Inflation is not tame, and once the genie is out of the bottle, it’s very hard to put back. Take a look at the items below to see how much they have risen in just 3 years. None of this data is made up and was sourced from the reputable site IndexMundi. As I mentioned before, there is nothing ambiguous about the price of a good. You can dispute why the price has risen, but not that it has.
|Measure||January 2009||January 2012||Increase|
|Food CPI||120.87 index||165.06 index||37%|
|Energy CPI||91.65 index||199.78 index||118%|
|Commodity CPI||103 index||188 index||83%|
|Industrial CPI||101 index||173 index||71%|
|Metals CPI||110 index||202 index||84%|
|Oil CPI||82.58 index||201 index||143%|
|Beef||$119.38 per pound||$192.24 per pound||61%|
|Pork||$55.95 per pound||$83.74 per pound||50%|
|Sugar||$12.24 per pound||$24.05 per pound||100%|
|Coconut Oil||$734 per ton||$1,450 per ton||98%|
|Peanut Oil||$1,340 per ton||$2,270 per ton||69%|
|Soybean Oil||$754 per ton||$1,130 per ton||50%|
|Palm Kernel Oil||$570 per ton||$1,370 per ton||140%|
|Palm Oil||$522 per ton||$1,020 per ton||95%|
|Barley||$121 per ton||$210 per ton||74%|
|Sorghum||$153 per ton||$265 per ton||73%|
|Coarse Wool||$464 per Kg||$,1270 per Kg||174%|
|Fine Wool||$625 per Kg||$1,500 per Kg||140%|
|Copra||$478 per ton||$965 per ton||101%|
|Hides||$38 per pound||$73 per pound||92%|
|Gasoline||$1.85 per gallon||$3.32 per gallon||80%|
|Diesel||$1.50 per gallon||$3.08 per gallon||105%|
|Jet Fuel||$1.47 per gallon||$3.09 per gallon||110%|
|Aluminum||$1,420 per ton||$2,150 per ton||52%|
|Iron Ore||$59.78 per ton||$140.35 per ton||135%|
|Rubber||$68.26 per pound||$164.48 per pound||141%|
|Tin||$11,290 per ton||$21,550 per ton||91%|
|Lead||$968 per ton||$2,100 per ton||117%|
|Rebar||$1,200 per ton||$2,100 per ton||66%|
|Zinc||$1,200 per ton||$1,990 per ton||38%|
|Copper||$3,260 per ton||$8,060 per ton||147%|
|Silver||$1,140 per ounce||$3,080 per ounce||170%|
|Gold||$858 per ounce||$1,650 per ounce||92%|
|Urea||$263 per ton||$368 per ton||40%|
Source: All data provided by IndexMundi
Another important note is that some of these items build upon one another. For example, when diesel prices go up, so do shipping costs. Therefore, in addition to a rise in beef prices, one must also factor in an increase in shipping costs. So, by the time the beef hits the shelves in the supermarkets, there is a double-whammy on the price.
Where has the inflation come from? There are many theories on that, but it’s undeniable that a tripling of the United States money supply is major contributor to inflation. Through the process known as Quantitative Easing (QE1, QE2, etc), the Federal Reserve has been pumping money into the economy. Relative to other world’s currencies the dollar gets cheaper, and thus foreign imports get cheaper. But all the products made in the United States get “more expensive” because prices rise, but salaries stay the same or don’t rise as fast as inflation.