. . . the Fed’s preferred inflation gauges are flawed. The so-called “core” rate of consumer price inflation strips out food and energy costs. The core Personal Consumption Expenditures (PCE) index has also been criticized for underweighting housing and medical costs.–Activist Post, May 5, 2017
Cooked stats make for a better looking GDP than actually exists, by lowering inflation. Anyone who goes to the grocery store knows the real rate of inflation to be much higher when you take into account packaging, weight, and volume of the food you purchase.
You’re getting less through creative packaging, meaning your money is going less far all the time. You cannot grow food and transport it without energy inputs, The main reason the Fed strips out food and energy from their inflation formula. The fact is that since energy is an input in some manner to all production, the price of oil is a better gauge of inflation.
Right now in inflation adjusted dollars to the 2016 Consumer Price Index, the nominal price (34.39) of oil is above its inflation adjusted price (34.13), which results from slowing production all around the world. That is, the real price of oil is actually deflating. The Federal Reserve in other words would be very foolish to raise rates into a slowing world economy (globalism), and should remain on hold until you see real inflation instead of deflation. In other words, globalists would not raise rates here.
And I do think the Federal Open Market Committee are globalists. Additionally, their quantity theory of money has been falsified, you cannot simply create inflation through printing up mounds of money. The velocity of money is slowing.
Actually, if you took M2 money supply it would also look like the above chart for M1 money.
The chart doesn’t lie: the velocity of M2 money is well below its historical secular trend. A bad sign for creating inflation simply through money creation. However, this is how I would look at the situation.
Imagine a thermometer filled with mercury. Now if you were to heat the thermometer tube with a match, you will notice a remarkable phenomenon. That is the temperature momentarily falls instead of rises (i.e., the thermal coefficient expansion of glass). This is because the glass tube expands before the heat actually reaches the mercury, momentarily increasing the volume of the glass tube. Then of course the mercury shoots up. That is, how one should think about inflation, that is inflation will soar once the money velocity picks up or the pass through of money in the system accelerates. That is, we are in the calm before the storm. As many commentators note there is no lack of liquidity in the system, it’s simply not being used.
To get businesses to invest in plant and equipment requires a stimulus, and that will be World War III. That’s what will jump start the economy and take up slack production. The trick will be keeping the war conventional, and not nuclear. Fat chance of that happening when any one of the countries fears regime change in the event of a loss. Every war I’ve ever examined produces a commensurate inflation. In fact, economist Ed Yardeni has a good discussion of it on his website.