On Inflation

Bruce Krasting's picture



By my calculation, the COLA increase for 2013 will be 1.51%. This is an important number for anyone who gets a monthly check from Social Security, or the Federal Workers/Military retirement plans.


COLA is a flawed measure of inflation. The calculation has both over, and understated inflation the past few years. Recent COLA increases:








The average SS recipient will see an increase in their monthly check of a whopping $21 as a result of the 2013 increase. The increased bite for Medicare will eat the raise (and more). Don’t expect a buying surge down in Boca.


SS has projected a COLA increase of 2% for 2013. The 1.5% actual result will produce a “savings” at SS of $4Bn. Throw in the Military and Federal workers, and it means ~$6Bn of less than “planned” spending.


Bernanke would look at the 2013 COLA increase and say:

“See! Inflation is too low! If inflation were higher, the government would spend more, and that would stimulate growth.


And Ben would be right. SS checks are a 1-1 multiplier. If the 2013 COLA increase was 4.5%, it would translate into an increase in government spending of $50Bn and an equal increase (.3%) in GDP. What’s not to love about more inflation?





Big spike in gas prices in Cali. A refinery blew up, the state has tough emissions laws so Californians pay the price. Bloomberg reported that the state wide average price for regular was $4.67.



So I drive off for a fill-up, chuckling at the poor bastards in Cali. I’m 30 miles north of NYC, about as far from the West Coast as you can get, what do I care what happens “out-there”? Unfortunately, the price of regular at my gas place is only 18 cents less than the “crisis” prices in the Golden State.





Note that the price of diesel is $4.79, This means that the cost of home heating oil for spot delivery is north of $4 a gallon. Most people around here use oil heat, and it is supposed to be cold this winter.


Now I’m wondering who those poor bastards are.






The WTI contract closed at 92.44. That's not all that high. So why am I choking on $4 heating fuel and $5 gas?


The answer is that the crude the country uses costs much more that than the WTI futures print. This chart is the cash price for imports in Louisiana. We are paying $113 a barrel!



The Louisiana crude price would be knocked down (for a few weeks) if the President opened the spigot on the petroleum reserve. The spike in the chart over the past few months might have prompted Obama to do something with the SPR were it not for the pending election. He’s done it in the past.

It would be a hoot if he did take some "executive" action with just a few weeks to go. Nothing is off the table with this election.






10% rent increase? That’s a big very inflation number.


I can confirm this (sort of). Rental costs are up, from South Florida to Boston. There is demand, properties have been moving more quickly than in the past few years.


“Shelter Cost” is a big chunk of Bernanke’s yardstick for inflation. I bet he is delighted to see the cost that renter’s are forced to pay is rapidly rising. This is precisely what he wants to have happen. He thinks that if rents go up it will encourage new construction, and that means debt creation and more jobs.


I’m not at all convinced of the virtuous cycle of growth through inflation that Bernanke is selling. This cake has to bake for another few years yet before you can tell if it’s edible.


One thing for sure, if you’re a renter, you’re getting screwed. You’re a pawn in a game of chess. You’re expendable. At least that is the policy of the Federal Reserve.





Goldman is out with a scary story on food. (Link)



Does ZIRP, QE and TWIST have anything to do with global food prices rising?


I don’t know the answer to this question. I don’t think anyone has an answer. And, it is a very important question to both ask and answer. I’ll hazard a range. Anyone with some better info, please contribute.


* - The relationship between Uber lose Fed policy, and rising food prices is greater than zero.


* - The cause and effect is less than 20%. (If food is up 10%, the Fed would be responsible for less than 2.0% of the increase)


Is it reasonable to conclude that the Fed is responsible for about 10% of food inflation? For you Fed lovers, is 5% the right number? Remember, the answer can’t be zero.


This stuff doesn’t really matter at all. The Fed didn’t take food inflation into consideration when it recently set monetary policy at “Infinity”. Maybe the deep thinkers at the Fed are right to exclude food from the equations. After all, Americans only spend 15% of their income on food. So a 10% increase is “manageable”. People will find less expensive “substitutes”. No problem at all.


That story does not sell so well in other parts of the world. Goldie reports on the percentage of food cost to income for some mega population countries:


India - 49.7%

China - 38.0%


Just saying, it’s that “Global Village” thing. And substitutes are not an option.





The market based expectations for inflation jumped after Bernanke said his version of “For Ever”. To be honest, I was floored when Ben went Unlimited. The spike in the Tips spread said I was not the only one who was surprised.


That spread settled down after the “Ben’s Big Day” leap. But it has been making a comeback of late. To my tired eyes, it looks like the spread is going to take out the recent high.



Does this matter? On one hand we have a promise from the Federal Reserve to keep the return on liquid funds at zero for many years to come. And the market prices long-term inflation north of 2.5%.


So the implied market price of one-year forward “money” is well offered at .9750. There is a bid at .9700, but the bid is vulnerable. And this a "good" thing.


I don’t get it.


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JeffB's picture

* - The relationship between Uber lose Fed policy, and rising food prices is greater than zero.


"Uber lose Fed policy" - Freudian slip, or intentional critique?


ptoemmes's picture

People will find less expensive “substitutes”. No problem at all.

What comes after substituting for expensive dog or cat food?

Oh wait - I know - Chinese Tilapia.


At Chen Qiang’s tilapia farm in Yangjiang city in China’s Guangdong province, which borders Hong KongChen feeds fish partly with feces from hundreds of pigs and geese. That practice is dangerous for American consumers, says Michael Doyle, director of the University of Georgia’s Center for Food Safety.

“The manure the Chinese use to feed fish is frequently contaminated with microbes like salmonella,” says Doyle, who has studied foodborne diseases in China.

On a sweltering, overcast day in August, the smell of excrement is overpowering. After seeing dead fish on the surface, Chen, 45, wades barefoot into his murky pond to open a pipe that adds fresh water from a nearby canal. Exporters buy his fish to sell to U.S. companies.



Jack Sheet's picture

If you want to raise your blood pressure even further read that stupid prick Shedlock

onlooker's picture

If the Fed can crank up the money printing press to supply the banks with money, bail out Corporations, supply billions of dollars to Pakistan and countries of that nature, why is it so stingy with the Cola?


 I think Cola covers some if not all of Government employees. If Cola were realistic the Post Office would have to give out cost of living raises, and it is broke already (is it even a part of government).  My Post Office People say there is little to no raise.


This is a trickle up government so Washington can loan and give so much to so few.

In fiscal year 2010, the U.S. government allocated the following amounts for aid:

Total economic and military assistance: $52.7 billion

Total military assistance: $15.0 billion

Total economic assistance: $37.7 billion

of which, USAID assistance: $14.1 billion.[1]


FeralSerf's picture

"why is it so stingy with the Cola?"

Because COLA goes to the sheep.  The object of the game we're in is to maximize the amount of wool and mutton the flock owners can harvest and minimize the amount of sustenance that must be supplied the sheep.   It's just good business.

paint it red call it hell's picture

Just picked up my organic fed pork from the meat processor. When I inquired how business was this fall, the owner indicated that beef processing was way off, "there's a shortage of cattle on the hoof".

Think food prices will be higher after the election??

shovelhead's picture

Back in the old days we called 'organic' plain old swill.

paint it red call it hell's picture

We called her Sally Pig back in the good ole days... I didnt get to name this one, but did get to choose that the swill not be GMO.

BeetleBailey's picture

The next time I hear some dunderhead on financial TV talk about "deflation", I'd like to slap the crap out of him.

"What did you say?"

..um..deflation... WHACK!

"Come again?"


"Say that again...:

uh...defla - BING!

...especially that fucktard Bernanke..man I'd like to wear my hands OUT on that mug....

Lying cunts

topspinslicer's picture

Let's call it the obama rabitt hole -- communists love it in there

GAAPpreNixon's picture

Keep pushing that red team blue team bullshit. Good luck with that.

And yeah, that applies to what the terms Capitalism and Socialism mean in the USA.

"In many ways the West already observes truly "free markets," or economic anarchy where giant corporations are free to do anything they wish, including wage massive, global wars in pursuit of their interests. The constricting laws and regulations many well-intentioned free-market advocates abhor, have been imposed by these unhindered, anarchical corporations, not by a "socialist government." What these advocates perceive as a "socialist government" is in fact an interface created and controlled by unhindered, unregulated, unaccountable corporate-financier interests."  Tony Cartalucci

The corporations that run this country believe in free ANYTHING for them and SLAVERY for you. All the bullshit about Capitalism or Socialism doesn't mean jack shit. It's all to keep you confused. The bottom line is FREEDOM; Corporations have it and we DON'T.

Have a nice day.


Brindle702's picture

Didn't MIT have a web page that tracked global prices?  I think it was all internet based too.  It got taken down for some shit reason.

madcows's picture

Last year's food inflation - 6.2%

This year's food inflation - 13.5%

Last year's gas inflation - 14.8%

This year's gas inflation - 10.3%

Last year's clothes inflation - 35%

This year's clothes inflation - 4.1%

Last year's heating oil inflation - 32.8%

This year's heating oil inflation - TBD this month.

two year personal inflation rate - 20.7%

Government calculated 2-yr inflation rate - 4.8%

Pity those old ladies dependent upon SS COLA adjustments and TIPS.  The government is stealing from them every year.

HoofHearted's picture

It can't be said enough...

Fuck you, Ben Bernanke.

a growing concern's picture

It really can't be overstated, no matter the topic of the article.


Fuck you, Bernanke!

bigwavedave's picture

Pack of 20 smokes just went up to 95 cents here. Fuck!

malikai's picture

Let them eat paper.

Jim B's picture

Or IPods!


All government data is suspect....

prains's picture

with the CPR finding increased levels of arsenic in USA rice products mostly due to increased food production coming from poisoned cotton farming land (lead arsenic pesticide) WATCH

the QUALITY of the food ERODE quickly as well

GAAPpreNixon's picture

And the BLS CPI formula studiously ingores the link between GMO and low level poison foods with increased health care costs and lowered life span so they can keep pretending that people can "SUBSTITUTE"  high priced organic food with CRAP in order to keep a FRAUDULENT LID on inflation numbers.


kaiserhoff's picture

Parts of the mid atlantic are still not hooked up to nat gas.  POTUS hates pipelines.

So, local boys are offering propane style tanks with compressed nat gas for the winter.

Cost per gallon/equivalent $2.20 as opposed to $4.00+ for fuel oil (essentially diesel).

No matter how much Ben and Timmy play whak-a-mole with free enterprise, freedom still pops up

now and them.

Arrest Dictator Ben.

madcows's picture

Here in rural new england, we have very few natural gas lines in the ground.  When redoing our oil burning furnace I asked if we could convert to Natural Gas.  The installer said we could only install a natural gas unit if we had the pipes in the ground.  They won't do a Natural gas tank similar to propane.  Of course propane is through the roof too.

We burn 1,000 gallons a year.  Every dollar the cost goes up is a dollar that is taken from something else.  Of course, to Bernanke, that doesn't matter.  It means inflation is zero.

Our personal inflation is now up to 13%, and almost all of that is due to gasoline, heating oil and food.

How long until we hold them accountable?

GAAPpreNixon's picture

How long until we hold them accountable for lies, distortions and outright fraud, counterfeiting and theft from Greenspan's jacking with the CPI formula to Bernanke's multiple assaults on the average American's pocketbook, not to mention war profiteering and "security" agency swag and "too big to fail" banks massively increasing the national debt?

When we GET the fact that we all need to STOP believing anyone will help us and just reduce our consumption to choke this oil oligarchy through non-consumption. We need to FORCE government to back renewables so this cruel game of jacking up fossil fuel prices cannot be played on us.

WE NEED TO GET OFF THE OLIGARCHIC METERED ENERGY! That's how they concentrate their wealth and procede to game the political system and contrive more wars and misery for the rest of us.

Only renewable energy (e.g. passive geothermal in New England knocks out 40% of heating costs right off the bat! - get your town council to eliminate ordinance hurdles to it. Or do you want to pay six bucks a gallon for heating oil next year? It's not going to get better with fossil fuels - just WORSE) can get the oligarchic vampire funnel out of our daily expenses.

OLD GLORY is NOT supposed to stand for the JOLLY ROGER!

kaiserhoff's picture

If there were more competition, the cost would be about $1.25

El Viejo's picture

Like everyone else I always thought the inflation number was low and consequentially was surprized to read in A. Gary Shilling's book: "The Age of Deleveraging" that he thought the number was about right or even a little high.  I'm wondering if there is a lag time and in the future it will be remembered as being low. These large moves in the economy tend to shake things up and force people to adjust the way they do their calcs.


Lokking4AnEdge's picture

The average price of Fish Taccos in Arizona is up over 30% in a year....this is a disaster!!

El Viejo's picture

Golly, I love fish tacos with papaya salsa!

PTDBDucks's picture

I keep hearing that there is no inflation because there is no velocity of money.

Yet, when I look at the spinning dials on the pump the velocity of money is quite evident.

Enough with these asshats! Next the usual guy will pop up and tell me that I don't understand the term "inflation". Something about inflation not being rising prices. FU! I've had enough of this BS.

madcows's picture

You can have inflation without velocity.  Just debase the value of the dollar, or limit the supply of an essential item like fuel.

LawsofPhysics's picture

When the majority of food planting, growing, harvesting, processing and delivering involves a shitload of diesel, statements like "there is little correlation between fuel and food costs" is beyond fucking stupid and outright disengenuous.  It's a double-whammy that "isn't counted" in the CPI - FAIL.


Moreover, energy costs in general are up, this also affects fertillizer cost and the cost of pumping water in a very direct way.

GAAPpreNixon's picture

Corrrect. And when you figure what decent food  (i.e. organic) costs, the increase over the last four years has fundamentally altered the percentage of income that Americans pay for their food. Organic is up AT LEAST 20% just this year.

Bernanke is lying and the BLS is lying.

Only Williams at Shadowstats has a proper handle on actual inflation.  

kaiserhoff's picture

Bruce is a good man, but he farms NY style, a $500 subsidy for each chicken, and plenty of Mexicans to shovel the shit.

Chump's picture

You're right of course but it doesn't matter until food stops getting delivered to grocery store shelves.

Math, fundamentals, projections et al simply do not matter anymore.  This party doesn't start until there are no more boxes of Mac 'n Cheese and Ho Hos.

azzhatter's picture

Just some local prices - Ice Cream- up 10% since Sept 15th, Pork up 12% since Sept 15th, Yogurt up 8% since Sept 15th, Cereal up 10% since Sept 15th. Yeah it's all good Ben, you filthy cocksucker. All good

Tombstone's picture

With all the wacky government data over the last week,  The Dictator will now offer Gas Stamps as a way of buying even more votes. 

WALLST8MY8BALL's picture

New York City Subways:



  • $0.05 (1904 – 1948)
  • $0.10 (1948 – 1953)
  • $0.15 (1953 – 1966)
  • $0.20 (1966 – December 31, 1969)
  • $0.30 (January 1, 1970 – December 31, 1971)
  • $0.35 (January 1, 1972 – August 31, 1975) (MSBA/Long Island Bus from 1973)
  • $0.50 (September 1, 1975 – June 28, 1980)
  • $0.60 (June 29, 1980 – July 3, 1981)
  • $0.75 (July 4, 1981 – December 31, 1983)
  • $0.90 (January 1, 1984 – December 31, 1985)
  • $1.00 (January 1, 1986 – December 31, 1989)
  • $1.15 (January 1, 1990 – December 31, 1991)
  • $1.25 (January 1, 1992 – November 11, 1995)
  • $1.50 (November 12, 1995 – May 3, 2003)
  • $2.00 (May 4, 2003 – June 27, 2009)
  • $2.25 (June 28, 2009 – December 29, 2010)
  • $2.25 (base fare), $2.50 (SingleRide ticket) (December 30, 2010 – present)
AGuy's picture

Seems about right. 98% decline in purchasing power.

My understanding the MTA is working on a new rate increase for next year.

 If you plot those figures on a chart it will slow a non-linear increase where the number increases occur in shorter periods and the amount of increases is higher.  <SARC>I think my math teacher told me its called "exponential growth", Whats that all about?</SARC>


bank guy in Brussels's picture

There's a great American workers' song about increase in public transit fares, coinciding with the above terrific timetable on NYC.

In 1949, Progressive Party candidate for Mayor of Boston, Massachusetts, USA, Walter A. O'Brien, Jr, ran on a campaign partly focused against the transit fare increases ...

In Boston, you had to pay to get on the train, and then pay a further coin to GET OFF the train ...

O'Brien had a terrific campaign song, 'Charlie and the MTA', about a man who couldn't get off the train because he didn't have that nickel ... and had to ride it forever

So 'Vote for O'Brien' and help get Charlie off that train ...

Song was later a hit by the Kingston Trio, a fun tune that represents the better part of America's past


Joe Davola's picture

I loved listening to my Dad's Kingston Trio albums as a kid.

RockyRacoon's picture

I was 11 years old and heard it live on the radio in 1959!

logicalthought's picture

Try pulling a three year-old Manhattan restaurant delivery menu out of your drawer (something not too fancy-- Chinese, Indian, Vietnamese, diner) and compare the prices to those in that restaurant's current menu. To my eye, price are up around 20%.

ilovefreedom's picture

Same thing with Credit card purchases of gas.

Go back in your credit card statements and track by "category".

Over the last 24 months for me.

I always fill up within a couple miles of "Low tank":

The lowest I paid was $45, The highest just recently was $65