According to the Consumer Price Index, inflation is at about 3%/year. Gold is up 24% this year. Oil is up over 50% in 12 months.
Assuming that the supply of gold is not violatile, shouldn’t these be roughly similar? What is the actual inflation rate?
Technically, inflation is not an increase in prices. It is an increase in the supply of money. Inflation can cause in increase in prices. This distinction is important because politicians and many neo-classical economists love to confuse cause and effect, and so define inflation as an increase in prices.
Inflation, defined as an increase in the supply of money, is hard to calculate, not least because some of the statistics are hard to come by, but it’s almost certainly greater than 3% per year. This is why things like gold and oil have gone up much more than the CPI, which pertains to a narrow basket of goods hedonically adjusted to suit the government’s purpose. When the supply of money increases, not all goods necessarily rise in price at the same rate, so bubbles in various commodities can arise. One reason for oil’s rise relative to gold, might have to do with rapidly increasing demand, a war premium, dwindling supply etc.
So what does the CPI mean then? As a consumer, my concern is what I pay for the CPI basket, not the price of gold. Right?
The CPI refers to a basket of consumer goods. The problem is that the government fudges the numbers to make it look a lot better than it really is. What politician wants to admit that most prices are rising much faster than 3%?
For an excellent article on this go here, http://www.shadowstats.com/cgi-bin/sgs/article/id=343
(Note: The author uses the word “inflation” as defined as being an increase in prices, instead of as an increase in the money supply, but the thrust of the argument is still vaild)
What politician wants to admit that most prices are rising much faster than 3%?
The party not in power? I’m not really buying the claims in that article. And even if it were true, his 7% markup is much less than the change in the gold price.
All politicians love inflation (expanding the money supply) because it allows them to expand the size and power of government. Inflation allows politicians to fund their pet projects without having to resort to borrowing. Of course, it’s not in their interest if the result of inflation shows up in higher prices, so they pretend that prices really aren’t rising at all.
Have you bought food lately? Do you put gas in your car? Tried buying a house in the last few years? Been to the doctor recently? I don’t think most people believe that their cost of living is increasing by just 3%. If you want to believe the government’s figures that’s up to you, but you don’t have to be a conspiracy theorist to see that something’s wrong here.
As I explained before, commodity prices (in terms of the monetary unit) don’t always move in lock-step with the money supply, but over the long run they tend to mirror the money supply fairly closely, absent changes in the supply and demand of the underlying commodity.
I think a lot of that is people bidding up the price of gold with the intention of using it as ‘money’ in the future. A lot of people are worried by all the doom and gloom predictions and numbers coming out of the Central Banks so they want to keep their money in an inflation proof commodity…which has the somewhat ironic effect of inflating the price of that commodity in the process. Supply, demand and fiat currency…
I’m looking at money supply data from the federal reserve.
The persentage increase in M1 is coming out to be .3%
" " M2 " " 6.6%
I would do M3…but they stopped publishing that.
I wonder why?