Worldwide Inflation

The ranks of those who believe official U.S. government figures understate true inflation continue to swell.  Bill Gross of Pimco, for example, has been insisting that inflation is understated for a long time.  John Williams of shadowstats.com has shown that if inflation were measured the same way today that it was in 1980, we’d be reporting Carteresque double digit inflation.  Increasingly, as folks see costs rising and inflation figures staying low, more and more analysts are agreeing with them.

One bit of data that Gross uses to support his contention, is that other countries are reporting much greater rates of inflation that what is acknowledged by the US.  Take a look, for example, at this chart:

pimco-isi-country-inflation-chart1.jpg

The dramatic spike in worldwide inflation seems inconsistent with the US insistence that inflation remains tame. Note that this chart doesn’t even include China and India, where inflation is rampant.

The CPI over the last year, allegedly, reflects US inflation of 4.2%.  Forgetting for a moment that an inflation rate lower than that was deemed sufficiently dangerous by President Nixon to warrant imposition of wage and price controls, the rest of the world would love to have a mere 4.2% inflation rate.  Over the last year Indonesian inflation has doubled, and is now over 10%.  China’s inflation rate is over 8%.  India’s is 11%.  The Phillipines reports inflation of nearly 10%.  Inflation is soaring in Vietnam.  Europe’s reported inflation is now the highest in 20 years.  Even Japan is now reporting inflation, its rate having nearly doubled over the last year.  As the op-ed in the Financial Times said yesterday, “If there were a Central Bank of the World its monetary policy committee would glance at today’s inflation rates and expectations of future inflation, then raise interest rates.”

And as we continue carry an enormous trade deficit, we continue to unload billions of dollars overseas, where their value evaporates away through inflation.

It is essential that we have some monetary sanity.  Printing up money, and borrowing excessively and incessantly, will destroy the value of a currency.  Our fiat currency is not linked to some stable and scarce commodity, like gold.  But unless the Fed treats the dollar as if it is stable and scarce, we will continue to face the danger of hyperinflation that might completely destroy the economic systems that we take for granted.  As long as our central bank and our government behave as if there is no limit to the amount of money that can be created, that risk will continue and intensify.

There is some indication that the Fed has finally gotten the message, and is beginning to reduce the flooded money supply.  Maybe we will even begin to see some increases in interest rates soon.

We can only hope.

Grace and Peace