« | »

Reuters Looks At The Bright Side Of Inflation

From Obama’s praetorian guard at Reuters:

Looking on the bright side of inflation

By Stella Dawson
April 8, 2012

WASHINGTON (Reuters) – Sometimes a little bit of inflation is not such a bad thing. In the United States, prices starting to creep upward shows the deep wounds from the credit crisis are slowly healing and the U.S. economy is well on the road to recovery.

The evidence is scattered but it also shows up in some national reports. Consumer inflation, after stripping out volatile food and energy prices, has edged upward over the past year and now is running just above the Federal Reserve’s 2 percent target.

Isn’t that great? In reality, inflation is much higher than 2%, even stripping away the minor matters of food and gas. Luckily, the precipitous fall of housing prices keeps the official inflation rate artificially low.

Workers’ pay is nudging higher as the labor market gradually improves. Hourly earnings have grown at an average annual rate of 2 percent since last May and posted a 2.1 percent gain last month, up from a 1.8 percent pace a year earlier

Good times, man. And never mind that according to most reports more people are taking home less pay.

The amount of slack in the economy also appears to be lessening, the Federal Reserve staff said in minutes last week from the March central bank meeting. When there is lots of unused capacity in the economy, price slashing is common. If demand holds up, the narrowing of the output gap could give companies some extra pricing power

You see? Prices are going up because of an increase in demand, which means the economy is expanding. It has nothing to do with the price of gas or higher taxes.

The United States gets a fresh read on inflation this week when the Labor Department releases the producer price index on Thursday and the consumer price index on Friday.

So, as usual, Reuters feels obligated to get ahead of potential bad news with a rosy scenario story.

Both measures are seen rising by 0.3 percent in March, after 0.4 percent gains the prior month. Excluding food and energy, core CPI is forecast to rise 0.3 percent from a 0.2 percent gain in February…

The Core Price Index is almost as useless an indicator of real inflation as the U3 is for real unemployment.

One reason for a higher core CPI is that the surge in energy prices over the past year is starting to get embedded in underlying prices

The hell you say! But weren’t we just told that our inflation was due to increased demand thanks to our burgeoning economy?

Chris Varvares, senior managing director of Macroeconomic Advisers, calculates that a $10 increase in the price of a barrel of oil pushes up the personal consumption expenditures price index, an alternate inflation measure closely watched by the Fed, by 0.1 percentage point after one year.

The International Monetary Fund similar estimates that a 10 percent increase in oil prices pushes up inflation by 0.5 percentage point after one year, and five years later, it still accounts for a 0.1 percentage point of the price increase – a lasting impact.

And how much has the price of oil increased over the last three years? Meanwhile, we are told there has been no inflation.

Usually price increases are temporary, causing a one-off hit to the economy. Fed policymakers have said they view these oil-driven gains as passing. But a recent IMF study found the Great Recession may have changed the dynamic

"It thus appears more likely that on average markets associated oil price increases with a stronger U.S. economic recovery in the aftermath of the Great Recession, thereby raising their expectations of inflation and policy interest rates simultaneously," IMF researchers said.

So to sum up, Reuters is telling us here that inflation is a good thing. But we don’t have much inflation to speak of, anyway. And if we did, it would be good because it means everybody is making more money.

Except it could also mean energy prices are driving prices up. But even if that is true, it is not Obama’s fault.

So vote for Obama no matter what.

This article was posted by Steve on Monday, April 9th, 2012. Comments are currently closed.

2 Responses to “Reuters Looks At The Bright Side Of Inflation”

  1. Petronius says:

    “From Obama’s praetorian guard at Reuters”


    This is surely one of the most twisted pieces of news reporting since Sarah Palin shot Gabby Giffords.

    One of the results of distorted economic reporting is that the markets are flying blind.

    Using the 1990-based CPI standard, inflation is running at about 6.5%. Using the pre-1990 CPI, inflation is about 10.5%. But according to Reuters it is only 2%.

    What wonders are possible when you subtract food and energy from the economy?!

    But not to worry. We will inflate our way to prosperity.

    The public debt and the compounding of interest on the debt is a huge drag on the economy. We must either write down the debt (default), inflate our way out of it, or be slaves to it for the next several generations.

    Given the lack of political will to rein in Federal spending and address fiscal solvency, hyperinflation is inevitable. The early stages of hyperinflation are marked by an accelerating upturn in consumer prices. I refer you to the second sentence of Reuters’ article above.

    As the regime runs up trillion dollar deficits year after year, the fiscal gap becomes so big it cannot be repaid in normal money, but only by printing more money.

    The Chinese stopped buying US Treasuries months ago; instead, the Chinese have been buying gold, oil, and other commodities.

    Nobody is buying Treasury bonds anymore except the Fed, and the Fed is buying them with fiat dollars fresh off the printing presses, ink barely dry.

    The Fed has been covering the deficits by buying worthless pieces of paper with other worthless pieces of paper. Think of it as a vast Ponzi scheme.

    The Fed is issuing great chunks of paper money to backstop the Treasury, while holding interest rates low to slow the accumulation of interest on the public debt, and to boost the real estate market and the other markets. This defends the interests of the elites, the Ruling Class. This also explains why the stock market has improved despite such a rotten economy.

    Of course somebody is going to have to pay for all this, and that’s where we come in.

    At some point the American people are going to be driven to the wall by inflation as the US dollar collapses under the strain of QE and the massive deficit spending spree by the Sandinistas in Congress.

    Inflation is a type of hidden tax on the people, which hits elderly pensioners, bondholders, and others on fixed incomes especially hard. By definition, inflation is a wealth destroyer; it is a form of robbery, a stealthy method of confiscation, of impoverishing the people, particularly senior citizens, and of transferring wealth from creditors to debtors.

    The end game : hyperinflation, price controls, shortages, rationing, nationalization of banks, barter system, riots in the streets, chaos, martial law, civil war.

    Four more years of Nerobama should clinch it.

    • tranquil.night says:

      Spot on.

      Every time the market gets shaky the rumor mill will start churning for QE3. From Zerohedge: http://www.zerohedge.com/news/goldmans-take-bernankes-new-qe-speech

      5. On monetary policy, the Chairman said that faster growth—perhaps needed to see further declines in unemployment—“can be supported by continued accommodative policies”. He also argued that because the increase in long-term unemployment was primarily cyclical, “then accommodative policies to support the economic recovery will help address this problem as well”. These statements were not necessarily calls for additional easing, but they clearly supported the Fed’s current accommodative stance.

      It’s a very thin tightrope the Fed is walking. As Petronius said nobody is buying mid or long term treasuries so they can’t go too. But the ‘recovery’ has no legs without continued ‘accommodation’s (currency/inflation leveraging). Earlier in the month Bill Gross of PIMCO was going in heavy on short-term T-Bills in anticipation for: “THE NEW QE is coming and it will be all about mortgage backed debt.” http://www.zerohedge.com/news/no-more-qe-bill-gross-isnt-buying-it-total-return-fund-mbs-holdings-surge-new-all-time-high

« Front Page | To Top
« | »