Is Inflation Understated?

Tyler Durden's picture

Submitted by Shane Obata-Marusic (@sobata416),

It’s ironic that in a day and age where Keynesian economics is the “accepted view” we still don’t pay enough attention to what Keynes said about inflation.

"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some... Those to whom the system brings windfalls,...become "profiteers," who are the object of the hatred... the process of wealth-getting degenerates into a gamble and a lottery... Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

Keynes On Inflation

The problem today is that some people believe inflation is lower than it actually is.

The Consumer Price Index CPI is used to measure the cost of maintaining a certain standard of living. Now it measures the cost of maintaining a certain level of satisfaction.


In reality, the purchasing power of the consumer dollar is tanking and the prices of many goods, services, and assets are increasing in price. The end result is that the consumer is suffering. By creating incredible amounts of money, the central banks of the world are debasing the currencies that they issue. In other words, the value of all of existing dollars is reduced when new dollars are supplied.

This is translating to a lower quality of life for more Americans. When one examines real median household income – which was down to $51 ,000 in 201 2 from $56,000 in the year 2000 – this becomes evident.

Before we continue, let’s make something clear. The year over year rate of increase in inflation has been in a downtrend for some time. Therefore, it’s reasonable to conclude that disinflation is a real risk.

That said, because of the presence of the central banks, it’s unlikely that deflation will become a real problem.

The CPI affects the economy because cost of living adjustments to social security, federal civilian and military retirement, and supplemental security income are tied to it. It’s also used to index income tax parameters, TIPS, and some federal contracts.

If the CPI is so important then why does it understate inflation?

That question brings us to the government’s “inflation dilemma”. The US government has 1 of 2 choices: either it can 1 ) mislead its citizens by understating inflation or 2) release accurate inflation data thereby increasing social benefit obligations. This is a lose-lose situation because, unfortunately, both choices only serve to perpetuate an already insurmountable debt problem.

So why is it important to know that inflation is understated? Because, as Keynes said in the opening quote, inflation is essentially a means by which wealth – in the form of real assets such as real estate, businesses, stocks, and bonds - is transferred from the poor and the middle class to the rich. As asset prices inflate, the rich get richer. This allows them to purchase even more assets. At the same time, the poor and middle class become worse off because they have fewer assets and more debt.

Due to the fact that the CPI understates actual inflation, low and middle income individuals are struggling to keep up with the rising costs of living. As a result, more and more people are relying on the government for support.

Inflation is only “low” because of how it’s calculated. Since the 1980s, the US government has made many changes to how the CPI is calculated. These changes have resulted in an index that no longer accurately represents how expensive it is for people to live.

The Way The Politicians Wanted It


In the early-1990’s, political Washington moved to change the nature of the CPI. The contention was that the CPI overstated inflation (it did not allow substitution of less-expensive hamburger for more-expensive steak). Both sides of the aisle and the financial media touted the benefits of a “more-accurate” CPI, one that would allow the substitution of goods and services.


The plan was to reduce the cost of living adjustments for government payments to Social Security recipients, etc. The cuts in reported inflation were an effort to reduce the federal deficit without anyone in Congress having to do the politically impossible: to vote against Social Security. The inflation-calculation changes had the further benefit to government fiscal conditions of pushing taxpayers artificially in to the higher tax brackets, thus increasing tax revenues. The changes afoot were publicized, albeit under the cover of academic theories. Few in the public paid any attention.


Federal Reserve Chairman Alan Greenspan and Michael Boskin, then chairman of the Council of Economic Advisors, were very clear as to how changing or “correcting” the CPI calculations would help to reduce the deficit. As described at the time by Robert Hershey of the New York Times, “Speaker Newt Gringrich, Republican of Georgia, suggested this week that fixing the [CPI] index, with its implications for lower spending [Social Security, etc.] and higher revenue [tax bracket adjustments], would provide maneuvering room for budget negotiators...”


John Williams'
Shadow Governement Statistics

The Boskin Commission estimates that the cumulative effects of a 1% bias (to the upside) would have added 1 trillion dollars to national debt in between 1997-2008; clearly, this was an incentive to lower the reported state of inflation.


If the CPI understates inflation then why is it so widely used and referred to? Probably because it’s accepted as “the best measure of inflation that exists”.

In terms of measurement, the CPI has 3 main problems: 1 ) hedonics, 2) substitution, and 3) understated costs.

1 ) Hedonic Adjustments are meant to account for changes in the quality of goods and services. The concept of adjusting prices for changes in quality makes sense. That said, the process is too subjective and is far from perfect.

Some examples:

New computer features were deemed quality improvements, with downside price adjustments made in the CPI for the changes, even though a consumer may not have wanted or used the features


The consumer still had to buy those features and pay full cost out-of-pocket, irrespective of what the government determined those products were generating in purported hedonic quality benefits that the consumer was not considering or using.


John Williams'
Shadow Governement Statistics

More issues related to subjectivity:

  • where does a good stop being a variety of a given product class and become a product on its own? – ex: Toyota corollas and Toyota camrys.
  • when it comes to a good or service’s characteristics, who’s judging their utility? The consumer or the producer or both?
  • how can someone accurately determine the “quality” of novel or intangible items?
  • what if the ratio of prices does not = the ratio of qualities?


  1. if an old product is discounted and a new product is introduced at an unusually high price
  2. if an item is introduced into the market at an unreasonably low price in order to induce demand and then subsequently increases in price during a return to normal market conditions
  3. when a new item is not comparable to an old item

and one final comment on inflation:

The take away point here is not that hedonics is a bad concept but that a lot of subjectivity is involved in calculating hedonic adjustments. I t’s a conflict of interest for the Bureau of Labor Statistics (BLS) to calculate the CPI because it’s in the government’s interest to lower social benefit payments. As a result, the BLS’s inflation data are questionable.

2) Substitution may reflect changes in consumption patterns. That said, the concept of substitution invalidates the CPI as a measure of the cost to maintain a certain standard of living. Ex: if Bob eats steak every day for a year but is then forced to switch to chicken because of rising beef costs then it’s plausible to think he’s maintained the same level of utility. That said, one cannot argue that he’s maintained the same standard of living if he’s forced to substitute steak for a lesser alternative.

BLS introduced: More frequent re-weightings of the CPI index from every ten years to every two years, which moved the CPI closer to a substitution-based index, but the change was not considered a change in methodology.


BLS introduced: On-going re-weightings of sales outlets (discount/mass-merchandisers versus Main Street shops), also moving closer to a substitution-based index and creating other constant-standard-of-living issues.

3) If the BLS was actually trying to measure the cost of home ownership then their measure of housing inflation – the Owner’s Equivalent Rent (OER) – would include property taxes, maintenance costs, and insurance. The next best option would be to use the actual price of home. The OER is even less realistic as it measures “how much someone’s house would rent for monthly, unfurnished and without utilities.

“the problem with this hypothetical approach to measuring a significant portion ofCPI is obvious at best. At worst, it’s somewhat disturbing in today’s information age where actual home price data are readily-available at the mere stroke of a key. The “corrected” CPI measure clearly failed to predict an incredible amount of home price inflation which ultimately led to the biggest housing bubble in the history of the world.”

A lower OER leads to a lower CPI . This in turn leads to lower rates which lead to an even lower rate of growth in OER; it’s a negative feedback loop. What’s more is that the OER is the single largest component of the CPI"

The CPI also fails to reflect higher costs in other areas such as energy, tuition, medical care, and food and beverages. Here is a chart that demonstrates how the CPI underestimates inflation:

Lastly, it’s important to the note that the CPI doesn’t include taxes - which have grown from 5% in 1 91 3 to over 30% in 201 3. I t doesn’t make sense that the CPI doesn’t include such a significant expense. Thus, the CPI is flawed as a measure of maintaining a certain standard of living.


The following section will examine multiple alternative measures of inflation. I t is not that any or all of these measures are perfect, it’s that the actual rate of inflation is higher than the CPI says it is. As a reminder, at its current levels, the CPI indicates that inflation is running at around 1% year over year.

1 ) Shadow Stats:

According to Shadow Stats, the CPI understates inflation by around 3% and 7% for the 1990s and 1980s based shadow stats alternatives respectively.

CPI Year-to-Year Growth The CPI -U (consumer price index) is the broadest measure of consumer price inflation for goods and services published by the Bureau of Labor Statistics (BLS).

While the headline number usually is the seasonally-adjusted month-to-month change, the formal CPI is reported on a not seasonally-adjusted basis, with annual inflation measured in terms of year-to-year percent change in the price index.

In the charts above we show two SGS-Alternate CPI estimates: One based on the pre-1990 official methodology for computing the CPI -U, and the other based on the methodology which was employed prior to 1980.

2) Chapwood index:

In 2012, the average inflation rate for the top 30 cities – ranked by population – was approximately 11% - or more than 3x higher than what the CPI was.

3) The EPI (Every day Price Index):

As you can see in the following chart, the CPI and EPI tracked relatively closely until the early 2000s. At that point in time, the 2 measures began to diverge. Since 1 987, the EPI and CPI have increased by approximately 1 40 and 1 1 0 percent respectively. In other words, the EPI suggests that cumulative inflation from 1 987 to the present is 30% higher than the CPI would suggest.


Inflation is higher than the CPI says that it is and most people are aware of that. I f you ask your friends and family whether or not they’ve noticed a general increase in prices then they’ll say yes. As noted above, both food and beverages and energy costs have risen in price dramatically. Why is that important? Because the majority of people are exposed to one or both of those costs on a regular basis.

You can argue the magnitude of the inflation understatement but you can’t argue that the official numbers are accurate.

Under reporting inflation has led to many predictable outcomes.

Americans are accumulating debt, reducing their spending, relying on government transfers, and searching for yield because the cost of living is going up.

A repressed CPI also has many effects on the financial markets.
1) It provides justification for artificially low interest rates and QE
2) It leads to the perception that the USD is holding its value and
3) It leads to overstated real returns in stocks and especially bonds

In conclusion, inflation is the means and a wealth transfer from poor and the middle class
to the rich is the end.

Don’t be fooled by people who claim that there’s no inflation.

Although disinflation is – at present – a real risk, cumulative inflation is still drastically reducing the consumer’s purchasing power.


Source: Triggers (via @sobata416)

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DavidPierre's picture

Economist John Williams thinks 2014 will mark the beginning of hyperinflation.

“You are going to see, early on, a crisis in the dollar that will start to trigger the inflation . . . as the inflation picks up, that’s going to savage the economy, which is already in a depression.  It never recovered.” 

Forget what you have heard about the so-called recovery. 

“The consumer is in trouble.  There is nothing happening to turn the economy around.”  The weak economy is bad news for the dollar. 

“Anything that would suggest deficit deterioration here, and a weak economy would do that, will have a devastating impact on the dollar.”  And if foreigners start selling some of the 12 trillion U.S. dollar based assets, such as bonds and currency, things will turn ugly fast. 

“We’re dependent on the rest of the world continuing to go along with us and continue to support the dollar.  That’s not going to happen.”  So, the big question everyone is asking is when will the buck take a hit in value? 

The dollar will likely begin selling off before the middle of this year, and he adds, “It’s really going to be a currency panic . . . when the fundamental selling pressure really starts to pick up, when the selling gets heavy . . . in turn, the weakness will be seen in a spike in oil prices and a spike in gasoline prices.” 

There will be a panic out of the dollar and he predicts,

“Once you see a massive sell-off here, I see the game as being over.”

DaddyO's picture

SO does disinflation = deflation? Inquiring minds want to know...

Here is a link to John Williams and his inflation warnings(I posted in response to DP in another thread)


gmrpeabody's picture

Do you seriously expect us to believe that the government would be misleading us with tampered data, Tyler?

Oh, wait...

BigJim's picture

I think that once you take into account the massive and ongoing increase in the price of living, there's very little inflation.

Maybe even none!

akak's picture

As ZH poster JimmyJames has repeatedly reminded us, constant inflation-adjusted prices prove that there is no inflation.


(And if JimmyJames does NOT work for the BLS, then I would suggest that he is a perfect candidate for the position of official BLS spokesman.)

Musashi Miyamoto's picture

Miniplent, add choco rat 20g. - me doubleplusluv. Big Brother doubleplusgoodperson. BB feed minis, party, proles. Oceania undie.

Caviar Emptor's picture

You cannot get hyperinflation in an essentially deflationary construct. Hate to contradict J. Williams. We'll have biflation at every twist and turn, with demand destruction and overcapcity keeping inflation in check. 

Boris Alatovkrap's picture

Boris is like this word, "bifurcate"!

boogerbently's picture

"Understated" ????

I love it !

Is that like obama "misspoke" on obamacare ?

All the data is there....everything but the admission of guilt.


It's for the "Greater Good".

Boris Alatovkrap's picture

"Is inflation understate?"

Does Ursus Americanus defecate in boreal forest?

Buckaroo Banzai's picture

Yeah, I'm a big fan of John Williams but I'm not sure I see this dollar hyperinflation thing happening anytime soon. As terrible as the dollar is, everyone needs them, everyone uses them, and there is nothing to replace them given how horrible every other currency is. King Dollar is still the best looking horse at the glue factory.

Spungo's picture

"As terrible as the dollar is, everyone needs them"

This is no longer true. Lots of countries have worked out trade agreements so their currencies are directly convertible without using US dollars. The rest of the world no longer needs to have US dollars for international trade. Even the petrodollar is dying because China and Russia have Iran's back, assuring that any US lead invasion of Iran would result in global warfare.

OutLookingIn's picture


The "Golden Rule"

They who have the gold, make the rules.

As soon as China has all the gold it can lay it's hands on at this cheap price, then we kiss the US dollar global hedgemony goodbye. All those bucks in worldwide circulation will come flooding back home. Guess what happens when that happens? Can you say hyperinflation? I knew you could!

Whats that you say? China would not let that happen because it would make their dollar holdings worthless? News flash; China will put it down to the 'cost' of having their yuan take the place of the USD. Simple.

Dewey Cheatum Howe's picture

Yeah or we could kill the FED and have the Treasury start issuing silver backed notes. That would throw a serious monkey wrench in everyone's plans.... It might buy the US another couple of years of world dominance as far as being the currency of choice.

Silver always worked better as a currency than gold anyways....

akak's picture

Good idea.

Just one problem --- where are they going to get the silver?

Dewey Cheatum Howe's picture

Buy it on the open market, mine it, recycled silver etc. There is a lot more silver than gold out there. It may not be worth as much but that is the point is an accepted monetary metal and plentiful enough to float a USD backed by it to restore confidence in the currency.

akak's picture

But if the government is already not only bankrupt, but deep in the debt hole, where and how are they going to buy thousands or millions of tonnes of silver?  And you do realize that ALL the silver mined annually in the world only amounts to around 15 billion dollars at current prices, less than 1/5 of what is currently being printed/created by the US Federal Reserve per MONTH in their QE program alone?

I am not trying to be gratuitously argumentative or contrary here, as I would LOVE to see the scenario you outline be implemented.  I just think that we are far, far past the point where it could be done.

Dewey Cheatum Howe's picture

Old fashioned government decree of confiscation with the promise to pay it back later on. There are a lot of old I-phones out there. Think of the economic stimulus that goes along with it when people have to replace all them electronics for example. You'd have to phase it in concurrently with the FED still being alive and printing but at the same they are neutered from doing any more damage with monetary policy.

What debt can't be paid, won't be paid. The only question is there a major war over it with the losers being forced into servitude for another 100 years or do we try something different this time and repudiate the onerous portions, hit the reset button to avoid a world of Greeces.

falconflight's picture

Last figure I read was 58% of the trade transactions were in dollars.  That's down from 67% five years ago.  Bi-lateral currency swaps are being announced worldwide involving the Yuan.  Russia and China just signed a huge gas/oil agreement denominated in their currencies.  Saudi Arabia is the wild card in terms of how long they'll con't to back the PetroDollar.  The US Gov'ts foreign policy, i.e. Syria and Iran, seem to be pushing the Saudis to fundamentally reassess their relationship w/ the US.  They have announced this publicly on more than one occasion.  Let the Kingdom fall, and watch how fast the PetroDollar flames out.

akak's picture

Uh oh, don't tell it to Jon Nadler or anyone on CNBC!

Oh no, in their eyes, "the US dollar is forever!".


(Of course, nowadays, for most of the lemmings out there, "forever" equates to approximately " sometime next year".)

Spanky's picture



Lots of countries have worked out trade agreements so their currencies are directly convertible without using US dollars. -- Spungo

Note the recently announced (2013) Chinese / Euro currency swap... Not to mention a Chinese / Russian agreement to price oil and gas independently of the dollar. Those are cracks in the dam... and leaks are springing up all over.

BigJim's picture

 Yeah, I'm a big fan of John Williams but I'm not sure I see...

Yeah, I agree with most of these more 'doomer' pundits (Rogers, Faber, Williams, etc) on everything except timing.

At least Rogers admits he's a 'terrible' market timer... I seem to recall Williams has been talking about the USD's 'imminent' collapse for quite the while now.

caShOnlY's picture

As terrible as the dollar is, everyone needs them, everyone uses them, and there is nothing to replace them given how horrible every other currency is

Once that dollar becomes toxic to the holder it is game over.   Although many have made side currency agreements in trade most of the CBs hold dollars as "collateral" in reserves.  When that collateral begins to deoriate it must be exchanged for a more stable collateral.   See China and gold buying? who holds the most USDs? .........  

Most think that they cannot leave the dollar quickly, I beg to differ.  History shows that inside the nations whose currency collapsed there was turmoil but black markets and alternative exchanges took place.  This can happen on on a global scale, without a doubt.  In the ghettos of the US the laundry detergent TIDE is being used and a currency exchage for drugs. 

The FED has gotten off easy in creating 4 trillion (*cough*) in "air money".  When Canada, the biggest benefactor of trade with the US, starts complaining you know it's bad.  I don't think this game can continue for another decade, let alone another 2 years.

Sudden Debt's picture

well, that would mean a hyperbollic stockmarket so it won't hurt to buy some call on the indexes just to make sure!

DOT's picture

Have a beer on me, SD, and let us know when to sell.  BATMFH!

BeanusCountus's picture

First, thanks for the beer. Second, like any of this is a surprise? That beer i drank, unless i am now swilling PeeWater Blue Ribbon (not a reflection on Pabst, just a metaphor) it has gone up more than the stated inflation rate. A lot more. We will be left to an index that has us all eating franks and beans, bark, rabbit you raise in your basement and drinking fukishima bottled water. Cause its product replacement and FDA approved.

yogibear's picture

The Fed seems bent on triggering massive inflation rather than having deflation.

The fed will get much more inflation than they bargined for.

The government will just hide it. A game that goes on until people can no longer afford to live the lie and there is mass protests in the streets.

Good reason for the Fed to have their own bankster goon squad with fire power. So  the banksters can mow down the masses when the masses have had enough of the BS.

DaddyO's picture

Central Bankers fear deflation like the plague!

In Bernanke's writings on Depression 1.0, he specifically outlines deflation as the major culprit in fomenting the collapse.

The FED has a 100 year history of inflation, why would they stop now and why would they allow deflation to spoil an otherwise perfect record?


centerline's picture

The question here is "can" they stop it - and without crashing anyhow.  Realistically - no.  They can't.

My guess... EU pops.  Perhaps Japan goes with them.  USD spikes - kicking all the "dollar is dead" folks in the nuts just like the goldbugs.  Foreign investment here will be nuts and it will seem like a real recovery (except for food and energy prices continuing to suck).  Heck, that trend is already happening.

Anyhow, we get a couple of years at most and then the capital reverses.  It will be our turn.  The USD tanks.

You can bet on more bank issues along the way too.

Watch for an engineered bail in, and takedown of the TBTF banks BY THE FED.  Sheeple will be cheering.  Justice is served, right?  We are at ZH will know better though.  The maniacs in Washington will have even greater powers by then and will be unhindered by Wall Street after the takedown.

At some point shortly thereafter, pensions, muni's, etc. really start rolling over as the public sector goes into freefall.  What Washington does from there is where your hyperinflation starts.


skeeterpi's picture



I agree with you completely.



DaddyO's picture

Plausible scenario, however where does the social unrest play into your outline. At some point in the not too distant future, either the FSA goes haywire or the FSA benefactors say enough is enough and bam, it blows up.


AbelCatalyst's picture

Until debt is significantly lowered, deflation will lead the way because any new dollars go towards paying down debt...  and every dollar of debt destroyed means less dollars (and the dollar rises in value which is deflationary)...

I don't doubt we'll get to higher inflation (and the complete destruction of the $), but it's not until we have a healthy, uncontollable bout of deflation (which will begin to destroy debt via default).  It is then that the printing goes into overdrive which leads first to even more debt being destroyed (and the velocity of money dropping even more), which THEN leads to inflation (which will show up very quickly as the abundant supply of dollars will have no where else to go)... As long as dollars have a place to R.I.P. (debt destruction), then they will not significantly manifest themselves in the economy (hyper-inflation)...   

OutLookingIn's picture


Rates will spell the doom.

The new debt created will go to service the old debt via higher interest rates.

Vicious circle. Dancing around with NO chars. When the music stops? You get the picture.

AbelCatalyst's picture

Agreed. As the deflationary pressures begin to assert themselves and asset prices begin to drop people will flee to treasuries... Rates will get down near 1%... Then the tide will turn and your prediction will be acurate... Rates rising uncontrollably after the deflationary shock will mark the end...

Shizzmoney's picture


The CPI also fails to reflect higher costs in other areas such as energy, tuition, medical care, and food and beverages.

So they just don't account for, life, essentially.

In that case, then yes, no inflation.  iPads for all!

A Nanny Moose's picture

Prices dropping for iPads, Laptops, Bewb Jawbz, (and housing ca. 2008-2010), etc., while prices increasing for food, energy, medical, and edewjayshun.


Viola...2% inflation.

gherman's picture

Ready to take on the plutocrats...


Umh's picture

Financial repression is a tried and true method to reduce government debt. You can try to play along and hope to do the same, but it's risky.

LMAOLORI's picture


We have a winner with that statement.  What amuses me about this article below is financial repression for the masses has been going on since the Fed started QE


1930s-style debt defaults likely, says IMF research


"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."

Ernest Hemingway, Notes on the Next War: A Serious Topical Letter

from a pretty good letter to the editor...

Another Voice - Inflation and the Federal Reserve



Ms. Erable's picture


1lb. Ribeye (2010) $4.25; (2014) $7.99.

1/2 gal. Ice Cream (2010) $3.79; (2014) 1.75 quart: 3.99

1lb. coffe beans (2010) ~$6; (2014) .75lb $6.50.

This isn't the inflation you're looking for. You can go about your business. Move along, move along!

gmrpeabody's picture

Face piles of trials with smiles...

It riles them to believe that you perceive the web they weave...

Moody Blues, well college anyway.

LawsofPhysics's picture

"In other words, the value of all of existing dollars is reduced when new dollars are supplied." - 


If, in fact, those "new dollars" were actually being supplied to the middle and lower classes, I would agree.  In this case, they are not, which will only make this a revolutionary-style inflation as the average american will run out of cash/money extremely fast when the levy does finally break...

"Those who make peaceful revolution impossible will make violent revolution inevitable.

John F. Kennedy

JustObserving's picture
Is Inflation Understated?

Yes, by at least 4%.  Than means the US economy has been shrinking every quarter since 2008.  US GDP growth of 3.6% in the 3rd quarter was actually a dip of 0.4%.  But since when did truth matter in US economic statistics? Remember, they enhanced the employment numbers to get Obama reelected?

A Nanny Moose's picture

Accounting for unbacked currency emmission (debt), the economy has be shrinking since about 1950.

Sure the nominal amounts were smaller relative to today, but that's the way exponents work.

jerry_theking_lawler's picture

ahha....but what about all of the .gov growth as compared to GDP? The GDP is what really matters isn't it? If you fake a good GDP number then you can SPEND away in the .gov.....

A Lunatic's picture

Simple fix. Outlaw food and beverages..........

LMAOLORI's picture

Let them eat cake :)


or some fake meat like they put in taco bell since the theory is you will substitute lol


Pricey Beef Is Set to Test Appetites


"U.S. cattle prices jumped to a record Friday, setting up a fresh hit of sticker shock for consumers at the grocer's meat counter.

Meatpackers this past week paid the highest cash prices on record for live, slaughter-ready cattle in the major producing states of Kansas, Nebraska and Texas. That led traders to bid up futures prices, which already had been rising as retailers increased beef purchases for the holidays and the meat industry grappled with tight cattle supplies after prolonged drought in parts of the U.S. Great Plains.

Analysts said the higher cattle prices likely will be passed along to U.S. consumers in the next few months. That would boost fresh-beef prices at retail that surged to a record $5.014 a pound in November, according to the U.S. Department of Agriculture, a 26% increase over five years ago."