In an excuse to keep interest rates low and allow the U.S. dollar to fall in value, the Federal Reserve issued its latest report saying, among other things, that wholesale prices rose far less than expected, supposedly reinforcing their interest rate policy.
Federal Reserve Chairman Ben Bernanke also stated in a speech on Monday that “Inflation seems likely to remain subdued for some time.”
In this article on want to focus on inflation and the consumer in America, and in that regard the idea that inflation is down is ludicrous and false.
In the Federal Reserve report it says that there was a 5.7 percent drop in the prices of light trucks, which helped offset the increase in prices of fuel and wholesale foods. Somehow that is being considered an indicator that inflation is down. In reality, it’s really ignorant.
Why? There are several reasons. One. The reason some prices of light trucks had been modestly holding was because of the “cash for clunkers” gimmick used by the government to temporarily generate some sales, which after being over, has now brought prices back to real market rates. Somehow that’s being considered a good thing for the inflationary policies of the Fed at this time.
Second, and more important in my view, is it’s irrelevant as to the price of a light truck if no one is buying one, which is the reason prices fell after the money from the “cash for clunkers” was spent.
So if very few people are buying a light truck and the prices go down, how does that help the American people in understanding the rate of inflation and how it may impact their finances? The answer is of course – it doesn’t.
What is happening in the real world is, things people are actually spending their money on like food and fuel increased in price by 1.6 percent, and something they don’t spend money on like light truck, have fallen in price. That is spun to make it look like inflation is being held in check.
Finally, if it wasn’t for the jobless rate in America, which stands at a 26-year low, inflation would be even worse than it is. That’s why fuel prices haven’t risen even further than they have, as the inability to pay for driving like they have in the past puts downward pressure on demand, keeping prices in modest check at this time. This applies to all sorts of goods and services as well.
Now when you take away the rising costs of food and fuel, the core index dropped by 0.6 percent, again, making it seem like inflation is in check, when in reality lower demand is driving prices down because people aren’t buying. In other words, the things people must buy are rising in price, while things they don’t necessarily need are moving lower in price because consumers aren’t buying.
The truth is the unemployment rate is what is saving Bernanke from being exposed as to what his flawed monetary policy is creating, because it’s delaying the inevitable upward explosion in prices, based on people putting more of their cash into savings and paying down debt, decreasing demand, which is forcing prices down for goods they don’t have to buy.
Add to this the continuing increase in many commodity prices, which are used by the majority of people, and you can see the spin concerning inflation being in check is just that: spin.
If you don’t buy something and the price goes down, that has no relevancy or measure of true inflation. In the end, inflation matters for what people are buying, and people are buying food and fuel. In relationship to them, prices continue to rise, no matter what other prices of products are doing.
