Practical Dad

PracticalDad Price Index:  March 2013 - Potential and Kinetic Inflation

Late winter is the time for the school science fairs and Youngest just continued the family tradition/requirement of participating.  What does this have to do with prices and inflation?  Simply because his experiment pertained to the conversion of potential to kinetic energy, via the mechanism of a torsion spring on an onager catapult .  A torsion spring is simply the twisting of opposite ends of a material in opposite directions so that tension - potential energy - is stored in the material; when the onager's throwing arm is depressed and released, the resulting launch of an object is the conversion of the potential to the kinetic energy.  With the massive increase in the money supply, albeit offset by the diminished velocity of money, the question of inflation is akin to that of the torsion spring.  The Federal Reserve has wound a financial torsion spring that has significant potential energy to generate inflation when the appropriate conditions are met.

But the March 2013 PracticalDad Price Index result presently indicates that while some prices have risen, the total cost of the 47 item market basket has actually dropped once again to 107.24 from February's 107.81 (November 2010 = 100).  Split out the 37 food items to their own index and the Food-only Index rose from February's 113.24 to 113.59; life is good provided that you don't have to eat.  The spread - an indicator of how food prices are diverging from non-food prices - for the two indices rose to 6.11, the third month in a row in which it rose.  The spread is still less than the all-time high of 6.26 reached in December, 2012 (which is when both indices maxed before collapsing in January 2013).

Month          Total Index          Food-only Index          Spread

12/12           108.07                114.33                           6.26

01/13           108.01                113.24                           5.23

02/13           107.81                113.59                           5.78

03/13           107.24                113.35                           6.11

 

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