Americans everywhere are being bombarded with welcome news regarding falling inflation. We are of course pleased with the news, but at the same time, we are appalled at the misreporting of the true meaning of that news. As usual, much of the erroneous slant on the news is intentional, attempting to convince Americans that prices they pay are falling.
Every increase in the Consumer Price Index (CPI) reflects rising prices. Some items have recently fallen in price, including gasoline and other commodities, but the overall price level of items we all need day to day is higher than ever. Only negative changes in the Index reflect lower aggregate price levels. In fact, we recently saw a negative change in the Producer Price Index (PPI), which reflects a generally lower price level at the wholesale level. This has little effect on the CPI unless negative readings persist.
Loyal readers may remember my discussions of the Chapwood Index, which is similar to the CPI, only accurate. Developed by Ed Butowsky, a financial advisor, the aim of the Chapwood Index is to measure changes in prices of a consistent basket of goods, in 50 consistent geographic areas. Findings are published every six months, and the results are eye-opening. In Jacksonville, FL, one of the locations tracked by the Index, the average annual rate of inflation over several years is 10.4%. For the record, this is about average for population centers tracked. Several areas clock in at over 13%.
In my lifelong study of economics, I was taught that a little inflation was required for a healthy economy. The argument was that purveyors of goods and services were incentivized by inflation to do things now, rather than later. Similarly, consumers were reluctant to wait, as prices would be higher later. The key, we thought, was to keep inflation “under control,” say 3% annually. Today, the Federal Reserve (FED) has a target of 2% annually.
Both numbers are completely useless. Not because of the numbers themselves, but because they are fictitious. With actual price increases closer to double digits, the reported numbers are bogus, but we’re forced to accept them as gospel. As a result, our standard of living is constantly eroding. In fact, during the 110 years of the FED, our dollar today is worth less than a nickel was in 1913. How bad can it get? We’ve seen it before, and it’s not pretty.
Reacting to ever-rising prices is an individual challenge. “Settling” for less quality and/or quantity is, unfortunately, among the rational responses to price pressures. Don’t be fooled by optimism in media and government. Excessive government spending is the underlying cause of inflation. It hurts everyone, and we all must demand lower spending from elected officials.
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