Inflation? Use Your Head…
One of the memes that's been gaining credence recently is that the price inflation/deflation argument is close to settled and that inflation is about to reappear in truly significant fashion. More articles are cropping up and the debate is the reason that I began the PracticalDad Price Index in late 2010, to actually monitor developments on a specified basket of 46 items. But you have to take a moment to think about it and whether certain articles about inflation are truly about inflation or something else entirely. That was the case this morning as I read Zerohedge's somewhat excited article about major inflation on Costco's Survivalist Food Cache, which had jumped in price by 47% over a six month period. I like Zerohedge and it's on my regular reading list, but some might have to stop and think a bit about this particular article.
Yep, the number 47 is correct and I've no doubt but that it did rise by that much, also taking into account the stealth inflation of downsizing the package amounts. But there are some things to bear in mind.
- Inflation is first and foremost a monetary phenomenon, usually a response to the supply of currency coursing through the economy at that time. That's why economists follow such money supply data as M1 or the larger, more inclusive M2 with such interest and why the skyrocketing M2 amounts have given inflation proponents real grounds for concern. Other things can cause inflation, such as a supply shock a la the Arab Oil Embargo, but that's not the issue this time around.
- Watching a market basket of items at three unrelated stores for six months has provided an insight into the early onset and/or the behavior of price. When most go shopping, they'll typically note that something has gone up in price only if it's something which they constantly buy and with whose price they're intimately familiar. More typically, someone will see the price and think I swear that I didn't pay that much last month, did I? But since almost nobody keeps their receipts and goes back to reference them, there's typically no positive identification and comments fill the blogosphere with observations and questions of whether something was noticed. Inflation is more akin to having a rodent that runs up and down grocery shelves, peeking its head out so that it's seen peripherally by the shopper. When checked, the rodent is gone but a dropping is left to confirm its presence and as you step back, you see it pop out again three shelves up and twenty feet away. If you don't want to shop in that particular store, think of inflation as akin to one of George Norry's Shadow People, who are typically only noticed peripherally. It isn't going to happen in such a concentrated instance unless things really are becoming hyperinflationary, or...
- Someone sees a chance to make a bit of a killing. When all of the pricing activity is occurring across a wide variety of generally unrelated food products - and lima beans are really not related to cake mixes - and from one particular business source, then whether the price rise is truly inflationary is questionable. My God, inflation is even hitting the company that packages all of the end of the world as we know it supplies...it must be true. When prices for such a disparate lot of items is rising that much at one clip, then you'll witness it everywhere and certainly not from one supplier.
I suspect that prices will rise given the sheer volume of money that's been thrown into the economy over the past two or more years, but there will most likely be a period of creeping inflation before anything such as that hits. Besides, the banks have been the recipients of most of that money and we all know how willing they are to part with it, don't we? When they decide to let it loose in the larger economy, then we can buckle up for the ride.
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