Say Hello to Inflation, Inflation is Dead

ilene's picture

Say Hello to Inflation, Inflation is Dead

(Featured in Market Shadows Newsletter, Fables and Fairy Tales. Also in the newsletter: A classic fable applied to investing, the selling of 4 puts, an indicator turning bullish, data on bond buying/selling, and more.)

Quantitative easing (QE or “money printing”) will continue despite Bernanke’s rhetoric about cutting back. (See Don’t Fear the Taper). Funding trillion dollar annual deficits requires monetization of debt. America is almost $17 trillion in debt. Interest rates rising just a few ticks closer to their long-term, normalized levels, would be an insurmountable strain on future budgets.

Admitting the true rate of inflation would trigger Cost of Living Adjustment (COLA) raises for government workers, pensioners and social security recipients. Private sector unionized labor and nonfederal government employees would likely demand raises too. Bond buyers would insist on higher coupon rates.

Our leaders have sacrificed integrity over fixing the underlying problems. Paul Price discusses the situation in Inflation Will Never Go Up Again. In his view, there is no plausible exit strategy from QE without risking societal breakdown as lifelong promises get broken (pensions, salary adjustments and social security payments). Civil uprisings have already occurred in Greece, Iceland and Cyprus. The masses are rebelling in Egypt today. The U.S. has avoided riots because QE is holding interest rates artificially low. The Bureau of Labor Statistics’ (BLS) manipulation of Consumer Price Index (CPI) allows the government to pretend inflation is not serious. When the public realizes the true extent of inflation, bond buyers will likely demand much higher coupon rates pushing up the government's cost of debt service dramatically. 

Inflation Will Never Go Up Again

By Paul Price

Really? My health insurance premiums have skyrocketed. My kids’ pre-college and university tuitions have been ramping up. The cost of filling my gas tank has soared. Shiny new menus at restaurants mean higher prices - cash-strapped operators do not print them just to offer exciting new entrees.

Obamacare's implementation will make matters worse. Franchisees won't be able to absorb the added cost of healthcare coverage, or the $2,000 per worker penalty. This expense will be passed along as higher prices.

Despite these anecdotal experiences and predictions, the government’s Bureau of Labor Statistics (BLS) tells us each month that the Consumer Price Index (CPI) is barely above neutral year-over-year. It all comes down to how ‘inflation’ gets defined. 

People generally think of annual inflation as the cost of a basket of goods and services today versus the cost of the identical basket one year earlier. While that makes sense, it is NOT what the BLS measures and reports. 

If you want the details of the BLS report, read the fine print (below). The CPI-U is said to represent the index for all urban consumers. 

Consumer Price Index Summary 

Core CPI specifically excludes food and energy costs, reflecting reality only for people who don't move, eat or buy any products requiring transportation. 

Rapidly rising income, property and sales taxes are not included in any of the BLS inflation numbers. Taxes add to the cost of living.

I traveled to Iceland last September. Part of that country’s post-2008 crisis management was the imposition of a 25.5% VAT (value added tax) on almost every retail purchase. Paying 25.5% in sales tax means each Krona can buy only 74.5% of the currency’s face value in real merchandise or services. Money unspent does not go towards paying VAT. But never spending money is the same as not having it. 

Iceland imposed currency controls due to its banking industry failure. Citizens cannot move their wealth outside of the country; they cannot buy non-Kronur denominated securities without prior government approval. In practice, Icelanders will either pay the prohibitive 25.5% tax or forfeit spending their already-taxed earnings. 

The same plan, with slightly lower rates, is in effect all over the Eurozone. When VAT rates move higher, inflation - defined as the cost of living - increases. (Imposing a national sales tax in the U.S. is a terrible idea. Taking money away from those who need it or could use it productively, and giving it to government, will allow politicians to do more damage. Deficits and spending won't drop.) 

As an aside, ‘temporary’ taxes are rarely temporary. The June 29, 2013, Philadelphia Inquirer recounted the story of the Johnstown Flood Relief tax of 1936. A 10% surcharge on all alcoholic products was levied to help the townspeople. 76 years later the tax has risen to 18% and is built into all Pennsylvania liquor sales. None of it is earmarked for Johnstown. The hidden tax is part of the final retail price that then becomes subject to PA’s state level 6% sales tax. After compounding both taxes, the final cost is 19.08% at the register. The price of booze is not included in official inflation lists even though government policies may be driving us to drink.

Excluding food, energy and taxes from core CPI allows the BLS to understate increases in the true cost of living. After high inflation years in the late 1970s, the government changed how it calculated CPI. This happened again in 1990. Each time, the BLS manipulated the measurement techniques to downplay the extent of cost increases. This lessened the government’s need to increase Cost of Living Adjustment (COLA) applied to employees and retirees. 

The excellent ShadowStats website provides monthly updates on what CPI would read if the rules were still the 1980 rules. The difference is startling. 

Alternative Inflation Rates from ShadowStats 

Some BLS tricks are even more devious.  

The BLS uses other tricks to lower reported inflation rates. The ‘substitution principle’ says that when the price of a particular item, e.g. rib-eye steak, rises, consumers will switch to lower-priced alternatives like ground beef. Under that scenario a 20% rise in rib-eye steak prices disappears completely if it can be offset with ground beef costing 20% less. If Lexus or Porsche MSRP’s go up 30%, it doesn't matter because the consumer can buy a Kia or Hyundai instead. No inflation adjustment required.

Our leaders also call improvements in quality with unchanged pricing ‘deflationary’.  The first iPads were crude by today’s standards but cost $600. The newest iPad with Retina Display still costs $600 but packs more power and features. The BLS counts that as a drop in price even though the price is the same. 

Until consumers are walking to work and eating cat food, the substitution principle allows the BLS to call CPI anything it wants. 

A real-world consumer poll showed very large increases in the out-of-pocket cost of living over the period from Q1 2001 through Q1 2013. The official change in CPI is almost invisible over that same period.

B.S. from the BLS 

Anyone who pays their electric, tuition or grocery bills, or funds their own health insurance plan, is painfully aware that the CPI and CPI-U numbers do not reflect reality.

The cost of living has been rising at a fast pace. Inflation, as measured by the CPI, will never go up significantly unless politicians abandon their deceptive practices.  Unfortunately, Washington D.C. has a strong interest in keeping the public uninformed.

Read the latest Market Shadows Newsletter, Fables and Fairy Tales (7-3-13). 

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Getting Old Sucks's picture

Yeah, like I see loads of whole boneless pork loins, sometimes on sale for $1.99 or $2.99 a pound and bacon is $4.99 a pound?  I gave bacon up.

Mentaliusanything's picture

Well I'm so old I knew Noah. buy your pork loins and make a small smoker. Yum bacon like you have never had, and hams so tender they melt in the mouth. The skys the limit, you should try my Pepperoni. Trouble was I got so good at it I can sell more than I make, even with an Industrial size smoker oven(s).The thing that passes for bacon today will give you Bladder cancer quicker than you can peel a banana. Just understand quick is often deadly but taste asks a premium and gets it. It started as a hobby and has become a pleasure to be sold out every week, and to have back orders that reach months out means Taste matters over $/ weight. The preservation method is as old as Noah and won't kill you with chemicals and water thats been poisioned by them.

chubbar's picture

Got any tips or recipes to share on smoking ham/pork? Been interested in starting that myself.

crtune's picture

I am thrilled to see you refer to Shadowstats.  This is one helluva site and effort. In short, the economist who runs it, got fed up with dumbed down government statistics, and the rest is history (and what a coincidence - ALL the differences this man has found make things look "rosier", rather than make things look worse; who would have guessed?).  Shadowstats says inflation is hovering between 5 and 7 percent. 

Shadowstats explains why we see almost no "official' inflation, yet, we all know our personal budgets are under price stress.  Prices of essentially everything are on a much steeper upward trend than would be the case, if the small roughly 1 - 2 percent inflation figure were actually accurate. 

This implies new way of enforcing control over a restive populace:  simply provide them with fake fundamental information like employment, inflation, GDP and so forth.  We can SEE this kind of thing in government stats, but is it also possible it is being done with the news information we are being fed?  I have heard that substantial budgets within "black" budget go to journalistic ends.

This one is worth the reading.  Thanks.

fijisailor's picture

The game can go on a long time as long as TPTB can convice the majority that everything is AOK

crtune's picture

Sorry about double posting. . .

This one is worth the reading.  Thanks.

StarTedStackin''s picture

Inflation is dead? Bitch must not go shopping..........what does it mean when the package size shrinks by 33%, but 'the price stays the same'.......

Bear's picture

Nothing really since food doesn't even enter into the equation. The CPI only measures the thing we don't buy. It will be no time at all when they start using Craigslist as the basis for product prices and declare that deflation is upon us and they have to print / spend even more to get us out of this terrible downward spiral.

11b40's picture

I think you missed the point of Ilene's snarky headline.

MyBrothersKeeper's picture

Good stuff.  The govt uses CPE as it's inflation index which measures consumer consumption.  But, as stated, leaving out the things 75-90% of non-housing income is used for is disengenuous at best (food, gas, healthcare, education)

LawsofPhysics's picture

Exactly, inflation is theft and deflation is a myth. No society/currency has ever collapsed/died because their purchasing power was too strong.

BlankfeinDiamond's picture

What? You mean the inflation numbers the government gives us is a lie?

sharkbait's picture

This is why I sold my TIPS.. What good is an inflation protected security when they will lie about the inflation rate?

CheapBastard's picture

TIPS are a huge misrep....


BTW, just got back from the grocery store. can't beleive it...three tiny packages--no meat or fish--and the bill was $32.58!

Those who say there is no inflation are either lying or dumb.

As you know, I'm a Cheap Bastard and I watch these things.

Bear's picture

Cheap, I am the Bear and even the trash I rummage is leaner and less fulfilling than back in the day.

Never One Roach's picture

Airfare has more then doubled for international travel.

Free Wary's picture

airfare from US to international destinations has not doubled. US dollars have been devalued by 50% over the last four years. That's about -12.5% annally.

dunce's picture

Sounds like you are both right, and the spelling of annually without the the u seems a Freudian slip. Any one that bought a ticket was anally violated.

hootowl's picture

From Ilene's article: "......unless politicians abandon their deceptive practice(s)"...Bwahahahahahahahahahahaha!

.....Must be Ilene's attempt at a little humor.

Join the Underground economy.


Longing for the old America's picture

On a recent trip from the USA to Spain more than 50% of the total cost was from various government taxes and fees.

PhilofOz's picture

I got a flight from Montreal to Malaga last year for $36, and paid almost $250 in taxes. Even so, I was not complaining.

All Risk No Reward's picture

Define terms, folks.  Price inflation vs monetary inflation.

Reported monetary inflation is rising, but not as much as a lot of product price inflations due to Wall Street banksters being given trillions so they can gamble on commodiites.

Make no mistake, the price increases are primarily because of speculation, not monetary inflation.  BTW, monetary inflation as reported isn't real because it pretends the trillions in bad debts aren't real.  When they eventually show up, the number will change dramatically.

BTW, this is nothing new...  Andrew Jackson from the mid 1800s...

Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank [updated to tax payer - even better!]. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!
~From the original minutes of the Philadelphia committee of citizens sent to meet with President Jackson (February 1834), according to Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels - online PDF

Go ahead and take a look who these vipers put on their $20 bill.  Yes, they think we are ignorant.

The bank, Mr. Van Buren, is trying to kill me, but I will kill it.
~Said to Martin Van Buren (8 July 1832) and quoted in The Autobiography of Martin Van Buren, published in Annual Report of the American Historical Association for the Year 1918, vol. II (1920), ed. John Clement Fitzpatrick, ch. XLIII (p. 625); Referring to the Second Bank of the United States

Oh, and the charter to the First Bank of the United States ended in 1811.  Do know what happened in 1812?  The nation where the banksters resided created the War of 1812. 

See how interesting history is when all the good stuff hasn't been removed for public consumption?

NickVegas's picture

I starting to wonder about history in general. These types of posts blow me away. What do I really know.? What were we before? A hero becomes a villian while the real villiam rewrites history to fit their needs.

11b40's picture

Which is why they don't really teach history in rich detail any longer, and Civics courses are now missing from most curriculums.

A mind is a terrible thing.

RunningMan's picture

"Education is a better safeguard of liberty than a standing army." - E. Everett

dunce's picture

The corruption of our education system has conquered liberty without an army other than the NEA union and socialist politicians. Common core is designed to put young minds in straight jackets and restrict their growth.

Bear's picture

Just don't make it Columbia, NYU, Berkeley, Stanford ... oh, hell just any US institution of higher learning. Things were a lot better in the Animal House. Indeed the new textbook for Finance 101 is 'Aminal Farm' 

All Risk No Reward's picture

It isn't even education - it is schooling, training and propaganda indoctrination.

Read, watch and listen to everything you can John Taylor Gatto.  The guy is amazing with an amazing message the establishment doesn't want let out of the barn door.

When I try and discuss the fraud of the debt based monetary system with people who, for instance, a Masters in Finance, they need to be deprogrammed first.

They revel in their knowledge of the complex, never realizing the con is in the simplicity...

"If a bankster lends society $20 @5% interest, society owes the bankster $21 in one year's time because of a bookkeeping adjustment that adds $1 interest liability to society and $1 interest asset to the bankster.
If society only was given $20, how can society pay back $21?"

Eventually he got it - to a point - but it was hard work trying to get a guy focused on economic "calculus" to set that aside and focus on the fraud that is in the third grade math.

Once you realize the monetary system is fraud beyond all doubt, you then realize that all the establishment structures that enable the monetary fraud are frauds as well.

If you do some research, you will find the same Big Finance Capital interests setting up the top of the various establishment societal institution hierarchies as well.

Debt Money Tyranny

It boils down to mega vs everyone else.  All the bigs are financed by the very same mega banks who are owned and controlled by the very same oligarch class.  They use real Econ 101, cost/benefit theory to fashion their control of money into societal control.

The plan is genius and effective - so genius and effective, in fact, that I can't rule out supernatural.

tango's picture

I read these rants frequently on ZH and have yuet to hear of an alternative means of financing ventures.   How can, for example, the restaurant up the road that is now expanding to two more locations, have gotten started without a loan from the neighborhood bank? There has to be a cost associated with the degree of risk, which is why those with good credit get better rates - the assumption is that the loan is safer.

I can't think of any other way.  I've heard some clueless folks here talk about non-interest loans in Islam as if it were a reality instead of a fantasy.  The "gift" is always accompanied by either a share of the profits, a social contract (marriage is popular) or collateral. I think we are confusing "banks" (local, regional, neighborhood) with "Banks" (investment, political, crony capitalism, in the business of trading debt and making money)

If society only was given $20, how can society pay back $21?"  Loans go to individuals or individual-acting entities - not "societies". The crux of borrowing with interest - something as old as mankind - is that one will be able to make the loan productive.   Thus, hundreds of thousands of Indian women are using micro-loans to establish small, profit-making enterprises that can easily repay the original loan giving them the chance to escape the dreary existence they once "enjoyed".  Thanks



Escapeclaws's picture

The graphic shows that the biggest increases are in health insurance and tuition. The other biggies, child care and kids toys is not a significant part of the average persons budget. Why health insurance and tuition? Because both are based on the idea of spreading the costs.  Ie, when the doctor charges $1500 for an x-ray, you don't really care because insurance will pay. Similarly, schools can spend on that new stadium because they know that it will be subsidized by tuition increases. There is a built-in dynamic in both of these that lead an ever increasing burden on ordinary people. It's basically a very successful scam.

Similarly, inflation itself is partly a scam that involves a feedback mechanism. Your local grocery store just had to increase the cost of pears because producers of pears are having to pay more for pesticides. So they jack up the price 20% relishing the fact that generalized inflation is such a great cover for a rip-off. Economists, of course, ignore the scam because that does not fit in with their mathematical models. Better a great theory that comes dressed in the finery of Hessian partial derivative matrices than a realization that this theory is like a naked emporer.

dunce's picture

Politicians dare not vote against any bill with education or medical care in its title or they will be accused of being against education and children or lertting poor  people die. In fact most of the bills make things much worse and very hard to change so the evil is institutionalized.

jughead's picture

Child care is not a significant part of the average person's budget?  On what planet?

Escapeclaws's picture

You are right for a certain demographic. However, I'm trying to make a point about certain types of expenses where a premium is charged that tends to make the rise in cost incremental and spreads the cost to a large population. This has the effect of creating indifference to outlandish charges such as $1500 x-rays. This is not meant to belittle child care, but merely to point out a specific dynamic which accounts for why health care, as well as college tuition, in the US is so absurdly expensive.

Essentially, the premiums rise to the point where they break the backs of the people paying them. This is another cleverly engineered scam that locks people into debt slavery in the case of student loans. Notice that coercion also applies in paying Obamacare premiums. This deliberate crushing of people's ability to survive is not an accident or unintended consequence.

TacticalZen's picture

Until bond buyers buy physical precious metal the hoax will continue.  However, that inflection point is usually very dramatic and violent if history is any indicator.  In the same way the Chinese cannot foreclose on the USA because they need us as a market, so too the bond buyers cannot call the bluff and say 'give it all to me in gold'.  Venezuela did, though!  Good for them.  They didn't trust having their entire national stock of gold in London with a promise it would always be available let.  Yea, right.

I wish we could predict with better accuracy the turning point.  And I wish I could make sure I was as removed from civilization as possible when it occurs.

SolarSystem1932's picture


OutLookingIn's picture

The government is lying?

To us citizens?

How can that be? They are supposed to protect us and our freedoms! I'm shocked!

<sarc off>

All Risk No Reward's picture

Dude, you are so old school.

Amwerica 2.0 is all about protecting us FROM our freedoms so the terrorists our government create and finance no longer have a reason to hate us American serfs.

Get with the times!

hidingfromhelis's picture

If we don't have any freedoms, then they won't hate us any more, right?

All Risk No Reward's picture

Man, apologize for the inconsistent grammar.  I get to hammering out rants that I neglect the mental grammar/spell check.  My bad.

They don't hate us for our freedoms, they hate us for our resource depletion.

Useless eaters, dumb animals and all.

The Big Bad Bank

tango's picture

Ignoring the fact that those areas have benefitted the most from Western technology, bypassing decades of first-stage development, I'd hazard resource depletion is at the top of the list of those trying desperately to blow up subways or buses.  The only resource that is important is oil and when that is gone, all investment will vanish and they will once again revert to a 13th century lifestyle in actual practice.  What can that arch from Morocco to Pakistan possibly contribute to the world in the way of education, science, art, technology or entertainment?      

Not being mean (and yeah, I have some Muslim friends) but their culture is not that creative.  How can it be when half of our speies is discarded and unused?

gorillaonyourback's picture

Good read thx. As gold and silver leave we will have nothing left the import countries want. So watch the metal and commodity markets for the coming dollar collapse.

cynicalskeptic's picture

Bacon.... that's right BACON is over $7 a pound here.  That's up from $4 and change two years ago.

My local property taxes have more than tripled in 20 years and fuel oil has more than quadrupled in 20 years.  Meanwhile my savings pay 0.0somethig % in interest.

hootowl's picture

$7 a pound for bacon???  My word cynical, where are you living?  Out on an Aleutian Island with the bears?....or in California where the faux-Hebrews have banned pork?....Or in NY where the local, peace-loving muscum will behead you if you get caught with pork in your refrigerator, or NannyBloomberg will banish you to re-education camp.

Join the Underground.


tango's picture

The only ones talking about banning bacon are your buddies at the Leftwing Morality Squad (LMS) who are determined to make you live a healthy life even if it kills you.  My Jewish friends eat pork since they're reform.  It's not the crap stuff that bad's for you in the inflation elevator - it's the good stuff.  Fruits and vegetables are skyrocketing and this is peak season!   Apples are almost unaffordable ($2.99 - #4.99/lb).  Here, in tomato land, they are one "sale" for $1.59/lb.  

Even the local markets have jumped on the bandwagon - raising prices like they were retain outlets.  Bell peppers are in the $1.59 range EACH.  Potatoes and melons another jump.   It's the cost of everything surrounding food production but particularly gas.  The heavier the product, the more it costs.  And those salad bags are soon going to be barely enough food for a hamster at the rate at which they are shrinkinb. 

neidermeyer's picture

Bacon in Florida was up to the $5-7 range less than a year ago ,, has moderated back to $3-4 but that's still higher than the $2.50-$3.50 range it was stuck in for years. Al other groceries seems to have moderated in the last year ,, or maybe I'm just getting used to the higher prices ... but it was definately running at 10% plus inflation for the 2008-2011 timeframe... and things like sugar are now in 4# bags instead of 5# with higher prices..

Bear's picture

Just watch for the China pigs

cifo's picture

Time to give up bacon... And sugar too. They aren't healthy anyway :)

Conax's picture

At our local Kroger's they now have low budget 12 ounce packages of off-brand bacon (or is it Chinese political prisoners) for the same price as a pound of cheap bacon a few months ago.  That is 25% inflation right there, and the bacon still sucks.

This coming from the pig farming capital of Amurka.

Zer0head's picture

Rosie wiped his ass with the deflation towel today on BBG


now if only he would eat it

what a douche he is