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| World Bank cuts growth forecast for 2012 »
January 18, 2012
BLS changing basis for calculating inflationAccording to the BLS, prices are dropping, including such areas as food and fuel. Funny, I haven't noticed anything close to a price drop at the grocer or the pump. Regardless, taking this data at face value, it likely reflects a shrinking demand for good and services because of an economic slowdown. Also, it simply belies the issue with the increase in money stock that has built up over the last several years. Both M1 and M2- basic measures of the amount of money in circulation, have increased very significantly in the last year. Unadjusted: M1 is up 32% M2 is up 15% I hope the reader is paying attention here. A 32% increase in the money supply is very large. The only thing keeping us from roaring inflation is that the velocity of money is so low right now. Money is not turning and churning through the economy quickly, but once it does, all this extra money pumped out into the marketplace will impact inflation in a major way.
Finally of note is this gem in the report:
What can this mean? I am guessing that in the most simple terms the BLS is coming up with a new evaluation parameter which will, for practical purposes, bury inflation and price increases even further into the fabric of their reporting. Given the mountain of money that has been created in the last year, the BLS will need this tool to keep the reported or official inflation rate, within acceptable political limits. |
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