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A Tale Of Two Extremes: Global Inflation In One Chart | Zero Hedge

A Tale Of Two Extremes: Global Inflation In One Chart | Zero Hedge.

While Europe, and the bulk of the Developed World is struggling to dig out of its unprecedented credit crunch (in which central banks are the only source of credit money which instead of entering the economy is stuck in the capital markets via the reserve pathway) and resulting deflation, the rest of the Emerging Market world is doing just fine. If by fine one means inflation at what Goldman calls, bordering on “extreme levels.” This is shown in the chart below which breaks down the Y/Y change in broad prices across the main DM and EM countries, and which shows that when talking about inflation there are two worlds: the Emerging, where inflation is scorching, and Developing, where inflation is in a state of deep freeze.

What is notable here is that despite hopes for a convergence between the inflationary trends in the Developed (downside extremes) and Emerging (upside extremes) world for the past year, what has happened instead is an acceleration of the process especially in recent weeks as EMs have been forced to devalue their currencies at an ever faster pace in order to offset the impact of the taper, leading to surging inflation as Turkey, Argentina, and Venezuela among many others, have found out the hard way in just the past month.

And as inflation in EM nations continues to roil ever higher not only does the implicit exporting of deflation to the DM accelerate, but it means that their societies approach ever closert to the tipping point when the citizens decide they have had just about enough with their government and/or their currency and decide to change one and/or the other. Hopefully, in a peaceful matter.

Worthwhile Canadian Initiative: “Is the falling exchange rate good news or bad news?”

Worthwhile Canadian Initiative: “Is the falling exchange rate good news or bad news?”.

“Is the falling exchange rate good news or bad news?”

I was on CBC radio yesterday morning for about 5 minutes, talking about the exchange rate.

From this experience, and from previous similar experiences, this is what reporters want to ask:

“Who gains, and who loses, from the fall in the exchange rate? For Canada as a whole, is the fall in the exchange rate good news or bad news?”

And the answer they expect to hear is:

“Exporters gain; importers lose. On the one hand it reduces unemployment; on the other hand it increases inflation.”

I don’t think reporters are alone in looking at it from that perspective. Most non-economists are probably the same. But economists are uncomfortable answering that question. Let me try to explain why:

The exchange rate didn’t just fall. Something, call it X, caused it to fall. So when we ask “Is the fall in the exchange rate good news or bad news?”, what are we really asking? You can’t give a good answer if you are unclear on the question.

We might be asking:

1. “Is X good news or bad news?”

Or, we might be asking:

2. “Given that X happened, should the Bank of Canada take action to prevent the fall in the exchange rate?”

To my mind, that second question is the useful one to ask. Because, even if we think we know what X is, and whether X is good news or bad news, if we can’t do anything about X, that isn’t very useful.

2a. An economist can say something useful about the benefits of two different monetary policies: would it be better for the Bank of Canada to fix the exchange rate, or should it target inflation and let the exchange rate adjust to wherever it needs to keep inflation on target?

2b. Or, an economist can say something useful about whether the Bank of Canada, in this particular case, needs to prevent the exchange rate falling in order to prevent inflation rising above the 2% target.

I decided to answer that second question, in the form 2a. I said it would be better for the Bank of Canada to target 2% inflation than to fix the exchange rate to the US Dollar.

I didn’t really answer 2b. But I think that, in this particular case, the Bank of Canada is right to let the Loonie depreciate, to help bring inflation back up to the 2% target.

My guess is that X is mostly news about Canadian inflation coming in lower than had previously been expected, and the realisation that the Bank of Canada would therefore not be raising interest rates as quickly as had previously been expected. (Note that when Statistics Canada released the December CPI data, on Friday morning, and inflation was just slightly higher than I had expected, the Loonie gained nearly half a cent in the next hour.) And maybe weaker commodity prices are part of X too. And maybe the US recovery, and the prospect of rising US interest rates, is part of X too.

Sometimes, when a reporter asks you a question, it’s best not to answer it, and to answer a different question. Not because you are weaseling out of answering the reporter’s question, but because you think about it differently, and you think the reporter’s question isn’t the right one to ask. (I now have more sympathy for politicians being interviewed, when they appear to duck an apparently straight question!)

Update: by the way, when reporters want to interview an economist, they (or one of the people they work with) will normally want to have a pre-interview discussion first. This is your chance to suggest they re-frame the question in the way you think it should be framed. You can tell them you wouldn’t be able to give a good answer to that question, but you could give a good answer to a different but related question. Because very few reporters have any economics background, they don’t really know what questions to ask. And, from my experience, they seem to be willing to listen to your suggestions, because they are trying to prepare for the interview, as well as help you prepare.

It would be interesting to hear any reporter’s thoughts on interviewing economists. (It must be tough!)

Posted by  on January 28, 2014

Minimum Wage Mendacity :: The Mises Economics Blog: The Circle Bastiat

Minimum Wage Mendacity :: The Mises Economics Blog: The Circle Bastiat.

 

Thursday, January 30th, 2014

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With President Obama’s State of the Union Address and its associated campaign prominently featuring increased minimum wage, tired arguments for raising the minimum wage are being once again retreaded. Unfortunately, they compound failures of logic, measurement and evidence.

It would stimulate the economy. If I pay $1 more than necessary to hire a worker, I get $1 less in services for my money. The increase in the workers’ consumption enabled by that $1 is a transfer from me to them, not a net gain.

It would increase others’ wages as well. Unfortunately, higher minimum wages reduce available jobs, and fewer alternatives don’t create higher wages. Unions and other competitors would see wage hikes, because alternatives become more costly, but other workers get fewer goods and services in exchange for their labor —i.e., decreased real wages.

It would make work more attractive, reducing government dependence. That would require additional jobs became available at a higher wage. However, fewer jobs will be available, so fewer people would be able to work their way out of dependence.

The minimum wage hasn’t “kept up” with inflation since the 1960s. This presumes without justification that the 1960’s minimum wage was economically justified. However, it was a Great Society aberration that coincided with a virtual stop in progress against poverty.

It also ignores that much of employers’ compensation goes to Social Security, Medicare, workmen’s compensation, new Obamacare mandates, etc., rather than as wages. As government- mandated employment costs ballon, the minimum wage substantially understates compensation.

The claim uses the CPI, widely known to overstate inflation, to calculate “real” wages. And the bias was even larger in the past. So going back to the 1960s for comparison mainly introduces a half century of compounded overstatements of inflation to dramatically understate real wage growth.

It would decrease the number of families in poverty. Unfortunately, as labor economist Mark Wilson put it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.” One reason is that most minimum wage workers are secondary workers in non-poor households, while very few are heads of households.

 

Even important businesses endorse raising the minimum wage. Unionized businesses and those who already pay more than the federal minimum gain from raising it, by increasing rivals’ costs. That those employers who would gain at others’ expense endorse a higher minimum wage says nothing about the validity of arguments against it.

A higher minimum wage will pay for itself in higher productivity, lower turnover, employee morale, etc. Every employer who believed that to be true in their circumstances would pay more without needing any mandate. Are those businesses always accused of being too greedy not greedy enough? Further, why do those states with the highest state minimum wages have higher unemployment rates and lower economic growth rates?

Even if some lose their jobs, most low-wage workers will gain from a higher minimum wage. This assumes that other terms of work will remain unchanged, which is false. For those who keep their jobs, fringe benefits, on-the-job training, etc., will fall to offset additional mandated wages. And the increased wages may well be less valuable (as well as taxable) than what is given up, especially on-the-job training that helps people learn their way out of poverty. That is why labor force participation rates fall and quit rates rise when the minimum wage rises, in contrast to what would happen if those workers were made better off.

Supporters of a higher minimum wage claim altruism to help working families as their motive. But it actually harms most of those supposedly be helped, while benefitting supporters by raising costs facing competitors. They may claim, as did the Chairman of Ben & Jerry’s Board, “I support a living wage economically, morally and with deep conviction,” but it is really a self-interested infringement on freedom that is economically stupid and morally abusive.

Photo Credit: Kristina Hoeppner

Peter Schiff Destroys The “Deflation Is An Ogre” Myth | Zero Hedge

Peter Schiff Destroys The “Deflation Is An Ogre” Myth | Zero Hedge.

Submitted by Peter Schiff via Euro Pacific Capital,

Dedicated readers of The Wall Street Journal have recently been offered many dire warnings about a clear and present danger that is stalking the global economy. They are not referring to a possible looming stock or real estate bubble (which you can find more on in my latest newsletter). Nor are they talking about other usual suspects such as global warming, peak oil, the Arab Spring, sovereign defaults, the breakup of the euro, Miley Cyrus, a nuclear Iran, or Obamacare. Instead they are warning about the horror that could result from falling prices, otherwise known as deflation. Get the kids into the basement Mom… they just marked down Cheerios!

In order to justify our current monetary and fiscal policies, in which governments refuse to reign in runaway deficits while central banks furiously expand the money supply, economists must convince us that inflation, which results in rising prices, is vital for economic growth.

Simultaneously they make the case that falling prices are bad. This is a difficult proposition to make because most people have long suspected that inflation is a sign of economic distress and that high prices qualify as a problem not a solution. But the absurdity of the position has not stopped our top economists, and their acolytes in the media, from making the case.

A January 5th article in The Wall Street Journal described the economic situation in Europe by saying “Anxieties are rising in the euro zone that deflation-the phenomenon of persistent falling prices across the economy that blighted the lives of millions in the 1930s-may be starting to take root as it did in Japan in the mid-1990s.” Really, blighted the lives of millions? When was the last time you were “blighted” by a store’s mark down? If you own a business, are you “blighted” when your suppliers drop their prices? Read more about Europe’s economy in my latest newsletter.

The Journal is advancing a classic “wet sidewalks cause rain” argument, confusing and inverting cause and effect. It suggests that falling prices caused the Great Depression and in turn the widespread consumer suffering that went along with it. But this puts the cart way in front of the horse.  The Great Depression was triggered by the bursting of a speculative bubble (resulted from too much easy money in the latter half of the 1920s). The resulting economic contraction, prolonged unnecessarily by the anti-market policies of Hoover and Roosevelt, was part of a necessary re-balancing.A bad economy encourages people to reduce current consumption and save for the future. The resulting drop in demand brings down prices.

But lower prices function as a counterweight to a contracting economy by cushioning the blow of the downturn. I would argue that those who lived through the Great Depression were grateful that they were able to buy more with what little money they had. Imagine how much worse it would have been if they had to contend with rising consumer prices as well. Consumers always want to buy, but sometimes they forego or defer purchases because they can’t afford a desired good or service. Higher prices will only compound the problem. It may surprise many Nobel Prize-winning economists, but discounts often motivate consumers to buy – -try the experiment yourself the next time you walk past the sale rack.

Economists will argue that expectations for future prices are a much bigger motivation than current prices themselves. But those economists concerned with deflation expect there to be, at most, a one or two percent decrease in prices. Can consumers be expected not to buy something today because they expect it to be one percent cheaper in a year? Bear in mind that something that a consumer can buy and use today is more valuable to the purchaser than the same item that is not bought until next year. The costs of going without a desired purchase are overlooked by those warning about the danger of deflation

In another article two days later, the Journal hit readers with the same message: “Annual euro-zone inflation weakened further below the European Central Bank’s target in December, rekindling fears that too little inflation or outright consumer-price declines may threaten the currency area’s fragile economy.” In this case, the paper adds “too little inflation” to the list of woes that needs to be avoided. Apparently, if prices don’t rise briskly enough, the wheels of an economy stop turning

Neither article mentions some very important historical context. For the first 120 years of the existence of the United States (before the establishment of the Federal Reserve), general prices trended downward. According to the Department of Commerce’s Statistical Abstract of the United States, the “General Price Index” declined by 19% from 1801 to 1900. This stands in contrast to the 2,280% increase of the CPI between 1913 and 2013

While the 19th century had plenty of well-documented ups and downs, people tend to forget that the country experienced tremendous economic growth during that time. Living standards for the average American at the end of the century were leaps and bounds higher than they were at the beginning. The 19th Century turned a formerly inconsequential agricultural nation into the richest, most productive, and economically dynamic nation on Earth. Immigrants could not come here fast enough. But all this happened against a backdrop of consistently falling prices.

Thomas Edison once said that his goal was to make electricity so cheap that only the rich would burn candles. He was fortunate to have no Nobel economists on his marketing team.They certainly would have advised him to raise prices to increase sales. But Edison’s strategy of driving sales volume through lower prices is clearly visible today in industries all over the world. By lowering prices, companies not only grow their customer base, but they tend to increase profits as well. Most visibly, consumer electronics has seen chronic deflation for years without crimping demand or hurting profits. According to the Wall Street Journal, this should be impossible.

The truth is the media is merely helping the government to spread propaganda. It is highly indebted governments that need inflation, not consumers. But before government can lead a self-serving crusade to create inflation, they must first convince the public that higher prices is a goal worth pursuing. Since inflation also helps sustain asset bubbles and prop up banks, in this instance The Wall Street Journal and the Government seem to be perfectly aligned.

Is Inflation Understated? | Zero Hedge

Is Inflation Understated? | Zero Hedge.

Submitted by Shane Obata-Marusic,

It’s ironic that in a day and age where Keynesian economics is the “accepted view” we still don’t pay enough attention to what Keynes said about inflation.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some… Those to whom the system brings windfalls,…become “profiteers,” who are the object of the hatred… the process of wealth-getting degenerates into a gamble and a lottery… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Keynes On Inflation

The problem today is that some people believe inflation is lower than it actually is.

The Consumer Price Index CPI is used to measure the cost of maintaining a certain standard of living. Now it measures the cost of maintaining a certain level of satisfaction.

1. VESTED INTERESTS

In reality, the purchasing power of the consumer dollar is tanking and the prices of many goods, services, and assets are increasing in price. The end result is that the consumer is suffering. By creating incredible amounts of money, the central banks of the world are debasing the currencies that they issue. In other words, the value of all of existing dollars is reduced when new dollars are supplied.

This is translating to a lower quality of life for more Americans. When one examines real median household income – which was down to $51 ,000 in 201 2 from $56,000 in the year 2000 – this becomes evident.

Before we continue, let’s make something clear. The year over year rate of increase in inflation has been in a downtrend for some time. Therefore, it’s reasonable to conclude that disinflation is a real risk.

That said, because of the presence of the central banks, it’s unlikely that deflation will become a real problem.

The CPI affects the economy because cost of living adjustments to social security, federal civilian and military retirement, and supplemental security income are tied to it. It’s also used to index income tax parameters, TIPS, and some federal contracts.

If the CPI is so important then why does it understate inflation?

That question brings us to the government’s “inflation dilemma”. The US government has 1 of 2 choices: either it can 1 ) mislead its citizens by understating inflation or 2) release accurate inflation data thereby increasing social benefit obligations. This is a lose-lose situation because, unfortunately, both choices only serve to perpetuate an already insurmountable debt problem.

So why is it important to know that inflation is understated? Because, as Keynes said in the opening quote, inflation is essentially a means by which wealth – in the form of real assets such as real estate, businesses, stocks, and bonds – is transferred from the poor and the middle class to the rich. As asset prices inflate, the rich get richer. This allows them to purchase even more assets. At the same time, the poor and middle class become worse off because they have fewer assets and more debt.

Due to the fact that the CPI understates actual inflation, low and middle income individuals are struggling to keep up with the rising costs of living. As a result, more and more people are relying on the government for support.

Inflation is only “low” because of how it’s calculated. Since the 1980s, the US government has made many changes to how the CPI is calculated. These changes have resulted in an index that no longer accurately represents how expensive it is for people to live.

The Way The Politicians Wanted It

 

In the early-1990’s, political Washington moved to change the nature of the CPI. The contention was that the CPI overstated inflation (it did not allow substitution of less-expensive hamburger for more-expensive steak). Both sides of the aisle and the financial media touted the benefits of a “more-accurate” CPI, one that would allow the substitution of goods and services.

 

The plan was to reduce the cost of living adjustments for government payments to Social Security recipients, etc. The cuts in reported inflation were an effort to reduce the federal deficit without anyone in Congress having to do the politically impossible: to vote against Social Security. The inflation-calculation changes had the further benefit to government fiscal conditions of pushing taxpayers artificially in to the higher tax brackets, thus increasing tax revenues. The changes afoot were publicized, albeit under the cover of academic theories. Few in the public paid any attention.

 

Federal Reserve Chairman Alan Greenspan and Michael Boskin, then chairman of the Council of Economic Advisors, were very clear as to how changing or “correcting” the CPI calculations would help to reduce the deficit. As described at the time by Robert Hershey of the New York Times, “Speaker Newt Gringrich, Republican of Georgia, suggested this week that fixing the [CPI] index, with its implications for lower spending [Social Security, etc.] and higher revenue [tax bracket adjustments], would provide maneuvering room for budget negotiators…”

 

John Williams’
Shadow Governement Statistics

The Boskin Commission estimates that the cumulative effects of a 1% bias (to the upside) would have added 1 trillion dollars to national debt in between 1997-2008; clearly, this was an incentive to lower the reported state of inflation.

2) PROBLEMS WITH THE CPI

If the CPI understates inflation then why is it so widely used and referred to? Probably because it’s accepted as “the best measure of inflation that exists”.

In terms of measurement, the CPI has 3 main problems: 1 ) hedonics, 2) substitution, and 3) understated costs.

1 ) Hedonic Adjustments are meant to account for changes in the quality of goods and services. The concept of adjusting prices for changes in quality makes sense. That said, the process is too subjective and is far from perfect.

Some examples:

New computer features were deemed quality improvements, with downside price adjustments made in the CPI for the changes, even though a consumer may not have wanted or used the features

 

The consumer still had to buy those features and pay full cost out-of-pocket, irrespective of what the government determined those products were generating in purported hedonic quality benefits that the consumer was not considering or using.

 

John Williams’
Shadow Governement Statistics

More issues related to subjectivity:

  • where does a good stop being a variety of a given product class and become a product on its own? – ex: Toyota corollas and Toyota camrys.
  • when it comes to a good or service’s characteristics, who’s judging their utility? The consumer or the producer or both?
  • how can someone accurately determine the “quality” of novel or intangible items?
  • what if the ratio of prices does not = the ratio of qualities?

Examples:

  1. if an old product is discounted and a new product is introduced at an unusually high price
  2. if an item is introduced into the market at an unreasonably low price in order to induce demand and then subsequently increases in price during a return to normal market conditions
  3. when a new item is not comparable to an old item

and one final comment on inflation:

The take away point here is not that hedonics is a bad concept but that a lot of subjectivity is involved in calculating hedonic adjustments. I t’s a conflict of interest for the Bureau of Labor Statistics (BLS) to calculate the CPI because it’s in the government’s interest to lower social benefit payments. As a result, the BLS’s inflation data are questionable.

2) Substitution may reflect changes in consumption patterns. That said, the concept of substitution invalidates the CPI as a measure of the cost to maintain a certain standard of living. Ex: if Bob eats steak every day for a year but is then forced to switch to chicken because of rising beef costs then it’s plausible to think he’s maintained the same level of utility. That said, one cannot argue that he’s maintained the same standard of living if he’s forced to substitute steak for a lesser alternative.

BLS introduced: More frequent re-weightings of the CPI index from every ten years to every two years, which moved the CPI closer to a substitution-based index, but the change was not considered a change in methodology.

 

BLS introduced: On-going re-weightings of sales outlets (discount/mass-merchandisers versus Main Street shops), also moving closer to a substitution-based index and creating other constant-standard-of-living issues.

3) If the BLS was actually trying to measure the cost of home ownership then their measure of housing inflation – the Owner’s Equivalent Rent (OER) – would include property taxes, maintenance costs, and insurance. The next best option would be to use the actual price of home. The OER is even less realistic as it measures “how much someone’s house would rent for monthly, unfurnished and without utilities.

“the problem with this hypothetical approach to measuring a significant portion ofCPI is obvious at best. At worst, it’s somewhat disturbing in today’s information age where actual home price data are readily-available at the mere stroke of a key. The “corrected” CPI measure clearly failed to predict an incredible amount of home price inflation which ultimately led to the biggest housing bubble in the history of the world.”

A lower OER leads to a lower CPI . This in turn leads to lower rates which lead to an even lower rate of growth in OER; it’s a negative feedback loop. What’s more is that the OER is the single largest component of the CPI”

The CPI also fails to reflect higher costs in other areas such as energy, tuition, medical care, and food and beverages. Here is a chart that demonstrates how the CPI underestimates inflation:

Lastly, it’s important to the note that the CPI doesn’t include taxes – which have grown from 5% in 1 91 3 to over 30% in 201 3. I t doesn’t make sense that the CPI doesn’t include such a significant expense. Thus, the CPI is flawed as a measure of maintaining a certain standard of living.


3) ALTERNATIVES TO THE CPI

The following section will examine multiple alternative measures of inflation. I t is not that any or all of these measures are perfect, it’s that the actual rate of inflation is higher than the CPI says it is. As a reminder, at its current levels, the CPI indicates that inflation is running at around 1% year over year.

1 ) Shadow Stats:

According to Shadow Stats, the CPI understates inflation by around 3% and 7% for the 1990s and 1980s based shadow stats alternatives respectively.

CPI Year-to-Year Growth The CPI -U (consumer price index) is the broadest measure of consumer price inflation for goods and services published by the Bureau of Labor Statistics (BLS).

While the headline number usually is the seasonally-adjusted month-to-month change, the formal CPI is reported on a not seasonally-adjusted basis, with annual inflation measured in terms of year-to-year percent change in the price index.

In the charts above we show two SGS-Alternate CPI estimates: One based on the pre-1990 official methodology for computing the CPI -U, and the other based on the methodology which was employed prior to 1980.

2) Chapwood index:

In 2012, the average inflation rate for the top 30 cities – ranked by population – was approximately 11% – or more than 3x higher than what the CPI was.

3) The EPI (Every day Price Index):

As you can see in the following chart, the CPI and EPI tracked relatively closely until the early 2000s. At that point in time, the 2 measures began to diverge. Since 1 987, the EPI and CPI have increased by approximately 1 40 and 1 1 0 percent respectively. In other words, the EPI suggests that cumulative inflation from 1 987 to the present is 30% higher than the CPI would suggest.

4) CONCLUSION

Inflation is higher than the CPI says that it is and most people are aware of that. I f you ask your friends and family whether or not they’ve noticed a general increase in prices then they’ll say yes. As noted above, both food and beverages and energy costs have risen in price dramatically. Why is that important? Because the majority of people are exposed to one or both of those costs on a regular basis.

You can argue the magnitude of the inflation understatement but you can’t argue that the official numbers are accurate.

Under reporting inflation has led to many predictable outcomes.

Americans are accumulating debt, reducing their spending, relying on government transfers, and searching for yield because the cost of living is going up.

A repressed CPI also has many effects on the financial markets.
1) It provides justification for artificially low interest rates and QE
2) It leads to the perception that the USD is holding its value and
3) It leads to overstated real returns in stocks and especially bonds

In conclusion, inflation is the means and a wealth transfer from poor and the middle class
to the rich is the end.

Don’t be fooled by people who claim that there’s no inflation.

Although disinflation is – at present – a real risk, cumulative inflation is still drastically reducing the consumer’s purchasing power.

Canada inflation picks up but still in danger zone | Business | Reuters

Canada inflation picks up but still in danger zone | Business | Reuters.

By Louise Egan

OTTAWA (Reuters) – Canada’s annual inflation rate crept up to 0.9 percent in November from 0.7 percent in October but it remained below the central bank’s target range, ensuring that chronically weak inflation will stay on policymakers’ radar as a top concern.

The Canadian dollar weakened to a 3-1/2-year low against the U.S. dollar after the Statistics Canada inflation report, which confirmed analysts’ expectations that steep discounting by retailers around “Black Friday” would prevent inflation from gaining much momentum in the near term.

A separate report from Statscan on retail sales in October showed unexpected weakness in the sector as purchases of cars declined.

The consumer price index was flat month on month, with the annual CPI rate pushed higher mainly by shelter and food costs, while prices fell for health and personal care as well as for clothing and footwear.

But the annual core CPI, closely watched by the Bank of Canada because it excludes volatile items such as gasoline and food, slipped 0.1 percentage point in the month for an annual rate of 1.1 percent.

Both the total and core inflation rates were slightly below market expectations of 1.0 percent and 1.2 percent, respectively.

“From a policy perspective, (it) helps fuel the growing narrative that the Bank of Canada is becoming increasingly more dovish,” said Mazen Issa, a strategist at TD Securities.

“Certainly the risk that the bank adopts an explicit easing bias in January continues to grow and this report lends further credence to that view,” he said.

Bank of Canada Governor Stephen Poloz told Reuters this week the bank’s stance on monetary policy is neutral, but he acknowledged it is “having trouble explaining” why inflation is so weak, as well as being puzzled by poor exports and business investment in the context of an improving U.S. economy.

The bank first explicitly stated an increased concern about low inflation in its October 23 interest rate decision, when it shifted into a neutral after 18 months of leaning towards rate hikes.

This month, it warned that heightened competition in the retail sector appeared more persistent than anticipated.

More retailers in Canada, including Target Corp (TGT.N: Quote) and Wal-Mart Stores Inc (WMT.N: Quote), have been running Black Friday sales in November even though Canadians celebrate Thanksgiving in October, as they try to keep customers from crossing the border for better deals.

In the United States, this shopping season is expected to be the most competitive since the financial crisis of 2008, with retailers discounting heavily to woo cautious shoppers.

Inflation has been below the Bank of Canada’s 2 percent target for 19 months. For seven of the past 13 months it has been below the 1 to 3 percent range the bank tolerates.

The latest figures suggest inflation will be below the Bank of Canada’s latest estimate of 1.3 percent average CPI in the fourth quarter. The bank will update its forecasts on January 22.

“I do think the real story here is on core inflation, the fact that we’re now just about scraping the very low end of the comfort zone for the Bank of Canada, and I do think it’s largely due to the heavy duty discounting we’re seeing among a number of retailers,” said Doug Porter, chief economist at BMO Capital Markets.

“So it’s a fairly big miss by the bank on core inflation.”

The Canadian dollar weakened after the report to C$1.0700 to the greenback, or 93.46 U.S. cents, from Thursday’s close of C$1.0666, or 93.76 U.S. cents.

RETAIL VOLUMES TO FUEL GROWTH

Retail sales unexpectedly fell by 0.1 percent in October from September as a downturn at car dealerships offset upbeat supermarket sales. Market analysts had forecast a 0.2 percent increase in monthly sales.

The weak reading followed three straight months of gains as four of the 11 retail subsectors declined.

However, in volume terms, retail sales grew 0.2 percent in October.

The data, combined with strong readings in manufacturing and wholesale trade in October, suggest the economy will grow at a healthy clip in the fourth quarter, although below the 2.7 percent annualized growth seen in the third.

Overall sales at motor vehicle and parts dealers fell 1.9 percent. New car sales slid 1.6 percent after a 4.6 percent surge in the previous month. Gasoline station sales fell 1.6 percent.

On the other hand, food and beverage stores registered a 1.7 percent jump in sales.

Total sales excluding the auto sector grew 0.4 percent.

 

KEEPING IT REAL Washington’s Blog

KEEPING IT REAL Washington’s Blog.

“One only needs to reflect on the dramatic decline in the value of the dollar that has taken place since the Fed was established in 1913. The goods and services you could buy for $1.00 in 1913 now cost nearly $21.00. Another way to look at this is from the perspective of the purchasing power of the dollar itself. It has fallen to less than $0.05 of its 1913 value. We might say that the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy.”  Ron Paul – End the Fed

The BLS reported the CPI this morning. They tell me that inflation is well contained and has only risen by 1.2% in the past twelve months. Our beloved Federal Reserve chairman is worried inflation is too low. It is fascinating that the only people worried about inflation being too low are Ivy League educated economists and bankers whose wealth depends upon the middle class sinking further into poverty. As a person who lives in the real world, I can honestly say I like it when the things I need to buy cost less today than they did last year. When did inflation become a good thing for the average American? Our country was somehow able to grow from a fledgling new country to a world power in just over a century while experiencing mild deflation, except during times of war. The fallacy that inflation is beneficial to the common man has been peddled by bankers since 1971 when Nixon and his cronies closed the gold window and unleashed the inflationary boogeyman in the form of feckless politicians, captured Keynesian academics, and greedy soulless bankers.

It is no coincidence inflation accelerated the moment politicians, academics and bankers were unleashed to spend your money at will in order to obtain votes, Nobel prizes in economics, and ill-gotten obscene levels of wealth. David Stockman described Nixon’s dreadful sellout of the American people in his brilliant new book:

“Nixon’s estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.” –David Stockman – The Great Deformation: The Corruption of Capitalism in America

The USD has lost 83% of its purchasing power since 1971. The moment Nixon began playing politics with the USD and bullied the Federal Reserve Chairman into pumping up the money supply prior to the 1972 election, the inflation genie got out of the bottle and led to the miserable stagflation of the 1970′s. It took extreme measures by Paul Volcker to get it back under control in the early 1980′s. Since Volcker we’ve had nothing but academics and toadies who have chosen to change the definition of inflation in order to mislead the average American regarding how badly they are getting screwed. Every refinement, tweak, adjustment, or revision to the calculation of CPI has been designed to produce a lower figure. Why control inflation when you can just change the calculation to suit your purposes?

Over the proceeding decades, the BLS has sliced and diced the CPI in such a way that they can make it say whatever TPTB want it to say. They need to keep the mushrooms (you) in the dark regarding your standard of living deteriorating, while the beneficiaries of inflation (bankers, politicians) see their standard of living soaring. They have made hedonistic “adjustments”, quality “adjustments”, substitution “adjustments” and geometric weighting “adjustments”, all with the sole purpose to reduce the level reported to the American people on a monthly basis.

CPI was supposed to measure a common basket of goods and services that Americans needed to purchase in order to live their lives. If the price for this basket rose, you had inflation. If the price for this basket fell, you had deflation. The politicians, academics, bankers and government bureaucrats decided if the price of steak went up by 10%, you would switch to chicken, therefore the price of steak did not go up by 10%. They decided if the price of a new car went up 5%, but you now had heated seats, the price didn’t really go up 5%. They now want to change to a chained CPI, which will further depress the reported figure. CPI no longer represents the increase in price of goods and services you need to live your day to day life.

Even the composition of the index doesn’t match the true cost picture for the average American. Somehow they bury the energy component within multiple categories and have the gall to argue that energy costs only comprise 9.6% of the average American expense budget. Tell that to the suburban two worker family that drives 30,000 miles per year and has to heat and cool a 2,000 square foot home. I doubt that too many families only spend 7% of their money on medical care. Housing accounts for 41% of the CPI calculation, but it is again a made up calculation called owner’s equivalent rent. Only an Ivy League economist could explain the calculation. The fact that home prices have risen by 12%, rents have risen by 4% and mortgage rates have risen from 3.25% to 4.5% in the last year somehow results in a 2.4% annual rate of inflation for housing.

If you have the feeling your standard of living has been falling for the last few decades even though your owners tell you the economy is expanding, inflation is contained, unemployment is falling, the stock market is rising, and consumer spending is growing, then you might be smarter than a 5th grader. The financial elite ruling class are counting on the dreadful public education system, along with their mainstream corporate media propaganda arms, to keep the techno-distracted math challenged masses from understanding how the financialization of the country has resulted in their demise.

Being a skeptical sort, I decided to verify the accuracy of the CPI propaganda issued by the Bureau of Lies and Scams. The combination of the internet and memories from my youth provide a powerful and accurate assessment about the truthfulness of our government. I decided to create a chart of goods and services that average Americans have spent their hard earned wages on for decades. In a matter of minutes I was able to obtain prices from 1971 for various items common to most people. I was eight years old in 1971, being raised in a middle class one earner household on the salary of a truck driver. The chart below provides the proof the government CPI data is a bad joke and the American people are the butt of that joke.

Category 1971 2013 % Change
Average Price of New Car $3,470 $31,252 800.6%
Average Price of New Home $26,000 $245,800 845.4%
Gallon of Gasoline $0.36 $3.50 872.2%
Natural Gas $0.35 $4.00 1042.9%
Loaf of Bread $0.20 $2.20 1000.0%
Sirloin Steak per pound $1.19 $7.00 488.2%
Dozen Eggs $0.25 $1.90 660.0%
Box of cereal 12 oz $0.36 $3.50 872.2%
Pack of Cigarettes $0.32 $6.00 1775.0%
College Tuition – Private $1,832 $30,094 1542.7%
Monthly Rent $150 $1,073 615.3%
Baseball ticket – Phila $2 $23 1050.0%
Movie ticket $1.50 $9.00 500.0%
Maximum Social Security Tax $406 $8,950 2104.4%
Median Household Income $9,028 $51,017 465.1%
Median wage per worker $6,497 $27,519 323.6%
Average Hourly Earnings $3.60 $20.31 464.2%
CPI 40.5 232.0 472.8%
Consumer Credit Outstanding (tril.) $0.14 $3.07 2092.9%
Mortgage Debt Outstanding (tril.) $0.51 $13.18 2484.3%

The BLS tells me the CPI has risen by 473% since 1971. The very same agency also tells me average hourly earnings have risen by 464% since 1971. This means the average worker is earning less than they did in 1971 in real terms. The median wage per worker has lagged CPI dramatically, as the averages have been skewed by those making outrageous compensation in the financial world. Median household income has barely kept pace with inflation even though households were forced to send both parents into the workforce, with the expected consequences of higher divorce rates and children left to fend for themselves or be raised by strangers.

By the government’s own measures, the average American’s standard of living has fallen since 1971. But, we also know the government has been manipulating the CPI figure lower since the mid-1980′s. After examining the true cost increases for housing, transportation, energy, food, education and entertainment, you would have to be brain dead or an Ivy League economist to believe inflation since 1971 has only been 473%. If home prices and car prices are 800% higher, while the energy needed to power and heat them are 900% to 1,000% higher, and the cost of food is 500% to 1,000% higher, how could the CPI only be 473% higher?

There are far more people going to college today than in 1971. With college tuition 1,500% higher, how can this not be reflected in the CPI? It certainly isn’t because the education is better. Statistics show the uneducated poor are more likely to smoke. Lucky for them, cigarette prices have risen at a rate of 4 times CPI due to the government taxing the crap out of them to fund their various taxpayer boondoggles. Inflation always hurts the poor and enriches the peddlers of debt.

My dad would take me to the brand new Veterans Stadium (built for $50 million in 1971) to see the Phillies in the early 1970′s. He paid $2.00 for a general admission seat and kids got in for 50 cents. We would buy a bag of soft pretzels outside the stadium and bring them into the park. We’d get a hot dog and soda for another $1. The entire outing to see a baseball game was about $5. Today, if I wanted to bring my family of five to a Phillies game at Citizen Bank Park (built for $458 million and paid for by the taxpayer) the lowest cost for the outing would be about $200. In 1971, you could spend a vacation week at the Jersey shore for $200. Now it gets you 3 hours of watching spoiled millionaires playing a child’s game while sitting with a bunch of foul mouthed drunks.

I also found it fascinating that the most regressive tax on earth, the Social Security tax, which hammers the poor and middle class while leaving the rich virtually unscathed has gone up by 2,100% since 1971. The rate in 1971 was 5.2% and the maximum salary level was $7,800. Today, the rate is 7.65% and the maximum level is $113,700. This increased cost for every middle class American is not factored into the inflation figures. Why would the government need to increase the maximum taxable wages by 1,500% when wages have gone up by less than 500%? The hard working truck driver bears the full impact, while Jamie Dimon not so much.

So now that I’ve proved beyond a shadow of a doubt the prices of everything we need to live have far outpaced our wages and the patently false drivel published by the BLS and parroted by the MSM, what are the implications? Well that is an easy one and is summed up by the last two entries in the chart. The average American has been lured into $16 trillion of debt over the last forty years in a pathetic attempt to keep up with the Joneses. Consumer credit (credit cards, auto loans, student loans) has gone up by 2,100% and mortgage debt has gone up by 2,500%. The American people have been sold a false lifestyle dream built on easy credit by evil bankers and Madison Avenue PR maggots.

There are those who would blame the people who have chosen to live far beyond their means. They have a point. The American people certainly haven’t shown a penchant for delayed gratification, saving for the future, or consuming less than they produce. But it takes two to tango and the lead in this dance of debt has been and continues to be the Federal Reserve and their Wall Street bank owners. It’s always reasonable to ask – Who benefits? – when trying to figure out why something has happened over time. Did the American people benefit by increasing the debt owed to Wall Street banks from $650 billion in 1971 to $16.25 trillion today? I don’t think so, based upon the visible deterioration I am witnessing in my suburban paradise.

The financialization of America; where Wall Street con artists,shysters and swindlers rake in billions for shuffling paper and making risky casino bets; mega-corporations ship blue collar middle class jobs to Asia in an all out effort to increase quarterly profits; politicians spend future generations into the poor house in order to get re-elected; and the Federal Reserve purposefully creates monetary inflation to prop up the corrupt system; has systematically destroyed the working middle class and created generations of debt slaves. The American people have been foolish, infantile, and easily duped. But it is clear to me who the real culprits in our long downward spiral have been. Lord Acton stated the obvious, many years ago:

“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”  John Emerich Edward Dalberg-Acton

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