Tuesday, 15 July 2008

US wholesale inflation hits a 27 year high

This inflation inflation thing is running out of control.

The US Labor Department has just published their June wholesale price inflation measure. It jumped a full 1.8 percent in just one month. US wholesale inflation is now at its highest level since 1981.

That is what you get when real interest rates go negative - accelerating inflation.



I assume you think interest rates must go up to stop it?

Anonymous said...

Haha this is all douche because I want filet minion in my basket all the time. Chick that kicken right on out of there and let a lobster crawl in, too.

One time I had some cow tongue in my bakset in Kazakhstan and I did not care for it. In that case, a chicken can crawl back into my basket and I will make a nice broth but maybe before that I will have the chicken and the lobster have a cage match.

-Ibod Catooga

Anonymous said...

Hi there Ibod Catooga,

Like your style man. Not too sure about your economics but what the hell. Let's party while there is still time.

A David

Anonymous said...


Can someone give us a reasoned lecture on inflation, please.

There seems to be a real disconnect between CPI and even RPI and experienced inflation. When experienced inflation is 50% + greater than Govt. stats inflation, how can one have confidence that the Govt. figures are meaningful for investment or other decisions?

Ok, a great idea to keep down wages and pension increases but a basis for investment? Pulease! Asteve, can you do the honours on this?

A David

John said...

Well, I'm not ASteve, but I'll have a go.

Both CPI and RPI are based on a broad range of goods. That's all fine and dandy as a general indicator of the rate of increase in the cost of living, but it's as relevant to an individual as your horoscope.

I'm married, two kids, commute about 80 miles per day, don't buy gadgets other than computers etc etc. My personal inflation rate is based on things I buy with great frequency; food, petrol, energy. The fact that clothes and electronics have come down in price is immaterial to me.

But, you have to have an index, and they'll always be synthetic. Whatever index you use, it will always be an abstraction of the underlying economic reality. Do you have a suggestion for an alternative measure?

John said...

The ONS explains how the CPI works;

CPI 2008 basket

Anonymous said...

My two pence worth:

Inflation is definitely very tricky to measure.

I remember a German colleague reacting with astonishment in the late 90's when I said that in the UK workers expect some kind of compensating inflation rise each year.

This was not the 'let's avoid the wage-price spiral' point of view now being pressed by the UK government - German reunification really pressed the public purse and taxes at the time.

Someone who worked in export credit finance for overseas engineering projects expressed the view that while according to the German government there was inflation, c. 1% at the time, if the constant improvement in quality and durability of German manufactures was taken into account, the German economy was experiencing significant deflation.

But the only person who would know that would be knew that be the happy Porsche or Hydroelectric plant owner who realised ten or twenty years later they had bought an extraordinary bargain because of its quality and durability, despite its apparently high price.

Even the marketplace cannot accurately cost that aspect of production, especially at the levels of quality and durability now possible, though it is more than anything what makes Japan a non-inflationary or deflationary economy.

Presently the value of services and goods is declining with respect to the value of food, oil and other commodities; we try to measure the overall change against the value of our money, imagining what is in the shopping basket, but does that kind of aggregate mean very much?

Buy low, sell high, as WB says. Buy sale bargains, SORN the car and ride a motorcycle: suddenly: no inflation! :)

B. in C.

Anonymous said...

A David


Don't tie yourself in knots trying to figure out the CPI, PPI, RPI, or whatever.

Inflation is increase in the supply of money and credit. It's already happened. It caused an asset bubble without hitting high street prices. Now the money's coming out of assets (and the credit is evaporating) and going into food and oil.

Inflation is in the rear view mirror. Deflation is here, quietly rumbling. Before long it will be a huge sucking vortex.


Anonymous said...

Many thanks for your comments. I'll SORN both the car and motorbike, pump up the bicycle tyres and buy a pair of shoes at a boot sale.

Thanks Nick, for reminding me that inflation/deflation relates to money/credit availability, rather than the effect on price increase/decrease of goods, services or assets.

Next problem is to consider whether it would be a great idea to put any money into RPI index linked certificates, or not. They're not going to keep pace with normal living costs on the way up but they will beat some asset classes which are heading down. If deflation causes the RPI to fall into negative territory, does it matter that the certificates are worth less than paid for? Maybe or maybe not. Hmmm, some deep thought needed.

A David

Anonymous said...

It would be very, very patriotic if we all put our savings at the disposal of the government in the form of Index-linked NSandI certificates; I mean, the Treasury is going to need an awful lot of money!

And I don't think this government guarantee to pay up would ever evaporate.

B. in C.

Anonymous said...

What's wrong with cash in instant access savings accounts (all under £35k) and an offshore gold account ready and waiting if the Goblin King goes all Weimar on us?

All my assets have been in cash since early 2007. In the past twelve months I've outperformed the FTSE100 by 27% without taking any risk. Not wishing to pat myself on the back (I didn't see the spikes in gold, oil and crops coming and I didn't have the balls to short the financials even though I saw it coming).

The point is that cash is a fantastic low risk "asset class" right now. Why rush to be fully invested in stocks or bonds?