- Inflation is back. (No, it's been here a while if you live in the real world) [Dec 12: Real Inflation Showing in Reports Not Called PPI/CPI]
- It comes at a most inconvenient time. The Federal Reserve is sharply cutting U.S interest rates -- the opposite of the usual response to rising inflation -- to prevent the housing bust and credit crisis from causing a deep, prolonged recession. That's making the global response to inflation more complicated. (no, it's not complicated - the middle and lower class gets destroyed as top 1% get saved/subsidized. See when you use the truth, it is really quite simple, isn't it?)
- In the U.S., consumer prices in February were 4% above year-ago levels. (try 12%, but humor me...)
- Rising prices for food, energy and other raw materials account for much of the pickup in inflation rates. High food and energy costs hit developing countries -- where consumers spend a larger share of income on those necessities -- particularly hard. In recent weeks, protests over rising costs have shaken countries from Vietnam, where prices are up 19.4% from last year, to Egypt. (thankfully the Federal Reserve promises it will all go away as the US economy slackens... like it did in the 1970s... what's that? Oh nevermind then) [Mar 31: Tensions Rise as World Faces Short Rations]
- On Wednesday, the World Bank estimated global food prices have risen 83% over the past three years, threatening recent strides in poverty reduction. (don't worry about it; that mostly affects humans who are not American therefore it does not matter...and the fact 1 in 10 Americans is now on food stamps is also not a problem - they don't invest in stocks - hence they don't matter to the Fed's calculus)
- But the fact that inflation is rising almost everywhere suggests some of its causes are global. (CNBC tells me it's all due to speculators - would CNBC lie to me?)
- As crops are sold for alternative-energy production, food prices have soared: The price of rice, the staple for billions of Asians, is up 147% over the past year. (Asians are not Americans; heck they are not even Canadians - again please note this does not matter - isn't the WSJ an American newspaper? Why all this focus on countries with names I never care about unless they win an Olympic medal.... did I mention everything will be fine in 6 months?) [Apr 6: Agflation Hits Rice - Prices Up 50% in 2 Weeks]
- The weakening U.S. dollar is another source. Not only is it pushing up prices of American imports, it is transmitting inflation to the dozens of economies that link their currencies to the U.S. dollar, from Saudi Arabia to Hong Kong to Mongolia. Because of their currency pegs, these economies are forced to track Fed rate cuts even if they aren't facing recession. (Really? So when we cut rates here and flood the world with US pesos, we cause pain for our middle and lower class, but also pain for every country pegged to our dollar - killing their lower and middle class? Haha! If only I cared - the most important thing is to save the top 1%. Fox Business told me, if we cut the rate for the top 1% that would help as well as it would create jobs... so please continue this process Ben; it is working like a charm!)
- An increasingly global economy may also be a culprit. Globalization got some credit for low inflation in recent years: The economic rise of China, India and the former Soviet Union helped expand the global work force and increase manufacturing capacity, holding down the prices of many goods. But the economic boom in emerging markets also means their currencies and prices are steadily rising, boosting the prices rich countries pay for imports from those poorer countries. (Well this I care about because if it means I need to pay 2 more cents at Walmart since Chinese workers are getting a 6% pay raise, I am now officially outraged and we need to do something - like move all manufacturing to Vietnam! And after they get their 3 cent/hour wage increase, we move to Indonesia... then we keep moving everything from 1 country to another, there are at least 180 counties where we can exploit labor so my toilet paper never rises above today's pricing!) [Feb 28: China Raising Minimum Wage] [Feb 21: Rising Factory Costs Erode China's Edge] [Feb 3: China's Inflation Hits American Price Tags]
- For now, rising food and energy prices are inflation's prime drivers. Core inflation, a measure that excludes volatile food and energy prices, is not rising as quickly as overall inflation. But commodity-price gains are beginning to work their way through the global economy. Even if commodity prices stay where they are, global inflation could continue rising for months to come as companies react to previous price rises.
- Kimberly-Clark Corp., maker of household goods, began raising prices in February between 4% and 7% for some paper products, including Huggies diapers, Cottonelle bath tissue and Viva paper towels. Hershey Foods Corp. raised the selling price of its chocolate bars 13% in February after boosting prices between 4% and 5% in April 2007. Hanesbrands Inc., which owns the Champion and Hanes apparel lines, has warned that sustained high cotton prices could filter through to retail prices. (ah but you forget the substitution affect - when Huggies goes up by 7% the government will assume people switch to diapers made with fig leaves... BOOM! Inflation solved. Paper towels go up by 6%? Consumers switch to using their shirt sleeve to clean up the Kool Aid spill. BOOM! Inflation solved! Underwear? Who wears that stuff anymore? No underwear = no inflation! BOOM! Inflation solved. If you only understood how we measure inflation you can see all of this can be explained away FOREVER - muhahah! It's genius! Seniors?! Here is your 2.7% cost of living adjustment, enjoy!) [Sep 28: Barry Ritholtz on Bloomberg Finally Seeing the Truth in CPI]
- Germany's recent wage gains are a flash point. Last week, some two million public-sector workers Germanwon a nearly 8% pay raise over two years, their biggest settlement in 16 years. In March, some 93,000 German steelworkers won a 5.2% wage hike, while train drivers picked up an 8% pay increase spread over two years. (laughable amounts in America - we are tough here - we can survive year after year with 0-3% wage increases as inflation goes 10-12%! Hell, when we lose manufacturing jobs, we go to service jobs and lose 25% of our income and still survive here! 4-5.2-8% pay raises? You have to be kidding me....darn socialists in Germany.... don't you realize having labor costs rise at that level cuts into corporate profits! How can anyone run a country where the consumer actually has a living wage that keeps up with inflation? That will kill corporate profits in the long run - just destroy them. That's no way to drive up the stock price and line the pockets of executives... losers - you call yourself capitalists...)
- In Slovenia on Saturday, some 10,000 protesters from across the Continent gathered at a conference of central bankers to agitate for higher wages. They got a cold response. "It would be an enormous mistake to imitate Germany," ECB president Jean-Claude Trichet told a news conference afterward, noting recent German wage restraint allowed workers there some space to catch up. (I hereby Jean-Claude Trichet honory American - now we're talking!)
- In the U.S., Fed officials are concerned that food and energy prices have increased inflation even though the economy is sliding into recession. But they are generally confident that inflation will recede as rising unemployment prevents workers from winning wage increases. (Now we're talking capitalism - a worker class that cannot win wage increases in the face of rising inflation! That's a great long term plan! It's worked like a charm the past 7 years as we went through an economic boom where the median American's real wages fell - that's a thriving society in my book! Who can imagine how median wages will react in a recession if that's how they react during a 7 year expansion? Hopefully we can get them to drop 5-10%! That means more corporate profits and better executive pay! Yee haw! [NY Times: For Many, A Boom That Wasn't])
- Similarly, inflation is stoking instability amid the Middle East's energy-fed boom. In Qatar, a rich emirate jutting into the Persian Gulf, surging revenue from natural-gas sales have led to more government spending. This year's budget is 46% higher than last year's, and more than four times the spending of just six years ago. Much of that is going to build highways, airports, infrastructure and schools. Says Yousef Hussain Kamal, Qatar's finance minister: "The surplus is huge." [Feb 26: NYTimes: Rising Inflation Creates Unease in the Middle East] (I am so sick of hearing about these countries with oodles of cash. We have oodles of cash too - printed by the day and helicopter dropped... so take that! Damn creditor balances - that is not a way to run a country. You need to go deep into debt and run a massive deficit decade after decade (and hide your war costs in off balance sheet accounting!) - again, enough talk about these foreign places with funny names - more focus on America please!)
- "Inflation almost always falls during economic downturns. The Fed has history on its side," says Julian Jessop, an economist with Capital Economics in London. He expects inflation to be much lower globally a year from now, and the new IMF forecast does, too. Nonetheless, he says, "The outlook for inflation is much more uncertain than it has been for a while." (yes I also believe "hope" and the "cross your fingers" strategy is what we should book our hopes on. I mean it works like a charm in the stock market, so why not for our centrally planned economy err I mean capitalist, free market (on the way up) and only socialist on the way down economy. Now about those bailouts....)
So what happens again when you combine inflation with lack of growth? [Dec 17: Greenspan Jumping on my Stagflation Theory] Oh yes, a recovery "in 6 months". See you then - I'll have my unicorn waiting.
