Posted on 01/14/2011 5:56:15 PM PST by Bigtigermike
In a speech in Phoenix in early November, Governor Palin warned that inflationary pressures were on the rise, particularly in the food and energy sectors. She also noted that Ben Bernanke’s plan to print another 600 billion to as much as 1 trillion dollars via his QE2 plan would only exacerbate the problem, as monetizing the debt always does, and advised him to “cease and desist” from this ill-advised scheme. This prompted the hapless Sudeep Reddy to cry foul and claim, essentially, that there was no inflation. Governor Palin promptly took Reddy to the woodshed, an exchange Palin won going away. Even Reddy’s employers at the Wall Street Journal agreed with Palin on the inflationary dangers posed by a devaluation of the dollar. In a subsequent Facebook Note, Governor Palin elaborated further, taking to task those who would weaken the dollar as a magic potion to grow the economy via an increase in exports:
Will driving the dollar down in this way do anything to boost U.S. exports? The short answer is not really. A weaker dollar will temporarily boost exports by making our goods cheaper to sell; but inevitably other countries will respond in kind, triggering the kind of currency wars economists are warning us about. It’s precisely to prevent this scenario that World Bank President Robert Zoellick recently came out in favor of some new type of gold standard or “international reference point.”
Governor Palin was correct, of course, in questioning the efficiency of focusing on weak-dollar driven exports as a useful policy prescription for long term economic growth. In a previous post, I discussed, among other things, the lack of empirical data to back up this tactic. In any case, Governor Palin’s inflation concerns were further vindicated yesterday with the release of the latest inflation data, via Ron Scherer at the Christian Science Monitor:
The warning flags on the inflation rate are starting to flutter. Higher food and energy prices helped propel the Producer Price Index (PPI) up by 1.1 percent in December, the Labor Department reported Thursday. This is the biggest monthly change in the past year. On Friday, when the Consumer Price Index for December comes out, economists will watch to see if the price hikes for manufacturers have been passed through to consumers. Wall Street expects the report will show a rise of 0.4 percent for the month. …food and energy prices have been higher than anticipated, and that could push the figure up to as much as 0.7 percent, which is an annualized rate of 8.7 percent, predicts economist Joel Naroff of Naroff Economic Advisors in Holland, Pa. Rising food and energy prices for consumers have larger implications for the economy. Both involve products that most consumers need to buy. Thus, any increase in their prices pulls money out of shoppers’ disposable income. “The rising food and energy costs tell me the first quarter is going to be uglier in terms of gross domestic product growth,” Mr. Naroff says. “I am already starting to mark down how fast the economy is growing.”
The CPI for December, to which Scherer refers above, came in slightly higher today than Wall Street expected at .5%. These numbers may sound benign, but they represent a significant increase over prior months and are an ominous sign for the future of the nascent economic recovery struggling to gain steam. Rising food prices in India and other nations are increasingly problematic. But much of this is missed since, significantly, official inflation data doesn’t tell the entire story:
But when economists, including Federal Reserve officials, talk about inflation, they often focus on a measurement of price pressures called “core” inflation. Core inflation excludes costs of food and energy goods, the very items that are the most visible prices for most consumers. [...] The theory is that food and energy prices historically have been subject to wild swings. Therefore, to get a better gauge of the underlying trend, you should cut those items out.
Excluding food and energy prices from core inflation, of course, is nothing new. But the benefit of removing the volatility inherent in food and energy prices from official inflation data doesn’t outweigh the resulting cost of inaccurate information, and has therefore never made a whole lot of sense to me. To be sure, the volatility issue is legitimate, but simply eliminating those vital items from the calculation results in, at best, an incomplete picture. While the BLS economists can simply “cut those items out”, consumers can’t. The demand for food and energy is inelastic. Elasticity is a term economists use to describe how sensitive demand is to a change in price. When a product is characterized by inelastic demand, rising prices don’t change consumer habits significantly. Energy and food are necessities. I have to have both to survive, and must continue buying them regardless of what is happening to their prices. For example, if gasoline prices rise to $5 per gallon as some are predicting (don’t expect any help from OPEC), I still have to buy it. Indeed my consumption of gasoline will not be significantly different than it was at $2…I don’t drive just for the sake of driving. Nor will I buy less food when prices rise. I still have to eat. The net result is that I’ll simply spend a greater proportion of my budget on food and energy, and less on those items which I don’t need to survive (what economists call luxuries) such as big screen TVs and vacations. How this benefits the economy is something Obama will have to explain sooner or later. And yet these two crucial products are not included in core inflation. This, conveniently, allows government officials (in both parties) to claim inflation is non-existent while those of us who consume energy and food (i.e. all of us) are left scratching our heads. Sudeep Reddy’s objection to Governor Palin’s inflation admonition two months ago was based entirely on an illusion. But outside the New York / DC corridor, where Governor Palin and the rest of us live, we can’t ignore food and energy prices simply because they’re volatile and therefore not included in “core” inflation. The fact is that prices of those goods and services that people need on a daily basis are rising at an increasing rate, and the policies of the Fed and Obama Administration are only exacerbating the problem, as Governor Palin predicted they would.
White House loves it that the MSM isn’t saying a word about all of this inflation and higher prices
They’re too busy making us all out to be murderers and teaching us how to be “civil”.
And the ‘pubs will raise the debt ceiling after a little kabuki theater in the House and Senate.
Very conveient of the government to not include food and energy costs when they compute inflation.
The GOP apparently wants to follow in the footsteps of the Whig Party.
If someone wants to put a gun in their mouth and pull the trigger, can you really stop them?
It’s becoming clear, unless big changes occur soon; the GOP/DNC are two sides of the same corrupt coin.
My wife will never believe that we could possibly go “Weimar” although she sees the signs everyday... I feel blessed that I was able to talk one relative into real assets ... ones that can get my family out of Dodge on a Boeing even in a meltdown situation and keep us going for a few years.
Of course they don’t. Its the only indicators which matter to us. Along with the real under-employment numbers.
Of course they don’t report these numbers, it shows us in the middle of the worst Depression we have had since the 1800’s. The only thing worse was when we didn’t have a single currency. We have the same thing now because our currency is not backed with anything. our manufacturing is gone, and of course the silver and gold standards are long gone, thanks to other liberal *astards in the 1940’s.
So of course the liberals do not want to get metaphorically hung in effigy. So they don’t report it. As if it doesn’t exist. Well it does exist, and we are feeling it.
Back in the 1700, France lost it’s entire nobility to a population sick of being overtaxed and otherwise abused.
Liberals never learn.
Bingo. We are fighting a losing battle by trusting the GOP. We need to run for offices and start taking back our government from the inside. This nonsense of sitting by and allowing hacks to run this Nation has to come to an end. I am serious, the only way to fix it is to run for office. If not, we are screwed.
And if'n they do, they deserve to be strung up from the highest trees like the traitors and Oathbreakers they are.
Bingo! Parties are in the business of winning elections not doing the people’s business. The real way to win the country back is to get the States to re-engage and fulfill their part of the check and balances in our form of government. The States created this Federal government and have the power to change and get it back under control.
The problem is too many at the State level prefer to grovel and go hat in hand to the federal government for money and so are content to live with the dictates which come from Washington D.C.
The inflation part, that was a no brainer.You can’t inflate the money supply as much as the federal government has over the past 3 yrs and not expect prices to rise. It’s only natural that the more dollars that are out there the less value they will have.
And anyone who has been buying food knows inflation has kicked in a couple of years ago! The real inflation rate is probably around 10% not the 1% or 2% the government claims.
Good article thanks!
Yea but people still buy their own food and are noticing that things are getting more expensive...I believe inflation, higher oil prices and the eventual collapse of the dolaar is going to happen soon and on Obama’s watch.. That is why both parties (especially Establishmnet types) are trying to destroy her now before the primaries as she will be the next POTUS if she gets the nomination. I think their plan is going to backfire as this women never gives up and it will allow her to campaign against both parties
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