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Inflation is Low, Unless You Need Food or Fuel

September 22nd, 2012 Comments off

09.22.2012

Inflation is Low, Unless You Need Food or Fuel

original article written by Net Advisor

WASHINGTON, DC. The Federal Reserve (The FED) recently launched a new round of economic stimulus. The FED is under the impression that inflation would stay in the “medium term” at or below 2% (two percent) (PDF). The FED’s views on low inflation has been anything but accurate (2010 report).

The FED seems to be believe that creating (more) inflation will spur job growth. It won’t. It will do the opposite (report). Inflation just makes things such as food, energy and consumer goods and services more expensive. This is not helpful when about 15% of the U.S. population is unemployed or underemployed.

How Government Inflation Numbers Are Manipulated
In a recent report we showed how government manipulates the unemployment numbers to make them appear better than they are. Now we will show how the government manipulates the inflation numbers to make them appear better than they are.

Inflation only appears low because the government excludes food and energy costs from the CPI (Consumer Price Index) – aka the inflation number. Anyone who uses food to eat, puts gas in their car has seen costs go up a lot more than than a “2% inflation rate”.

The government excludes food and energy costs from the inflation numbers because they are “volatile.” Government seems to think as consumers, we just can’t deal with reality; so government comes up with numbers that make us feel better, even-though we are paying more for everyday items anyway.

Read this directly quoted from the Bureau of Labor Statistics.

“In addition to the All Items CPI, BLS publishes thousands of other consumer price indexes. One such index is called “All items less food and energy”. Some users of CPI data use this index because food and energy prices are relatively volatile, and these users want to focus on what they perceive to be the “core” or “underlying” rate of inflation.”

— Source: BLS.gov (PDF page 6, highlight added)

Did this government paragraph sound a little confusing? BLS publishes 1,000’s of consumer price indexes? Do we need that many? Again, if CPI is all about figuring costs of things to consumers, why would one exclude the two things that consumers use every day: food and energy.

So what if food and energy prices are volatile? Are we not going to eat or use energy? It should be pointed out that the BLS.gov not only calculates the “inflation” numbers, they also calculate the “unemployment” numbers. There seems to be a serious creditability problem here.

Here are some current statistics about food inflation the FED is ignoring.
Prices at 3:16 p.m. CDT (2016 GMT) (Price Change Year-to-Date, Jan-Sept. 13 ) (Data Source: Reuters)

CBOT Rice +1.80%
CBOT Soy Oil +8.40%
CBOT Corn +20.10%
EU Wheat +30.60%
CBOT Wheat +34.70%
CBOT Soybeans +45.50%
CBOT SoyMeal +72.40%
U.S. Crude -0.80%
Dow Jones +10.80%
Gold +12.90%

One may argue droughts, food shortages, or whatever. This does not matter to most people. We would argue that what matters to most people is how much more do I have to pay for a loaf or bread, pasta, corn, or other food at the market, right? Whatever the reasons are, we are paying more, and not just this year either (report).

Gas & Oil
Crude oil showed a slight decrease in prices year-to-date however gasoline index is up 9% this year (Source: Market Watch). The Obama Administration has made many promises and attempt to remedy at least the fuel price problem. Last year, the Administration released some of our Strategic Petroleum Reserves (SPR) – what we are supposed to save in the event of an all out major war. The intent last year was to get oil prices down. This has always been a quick fix, but never has solved the long-term energy problem.

What Makes Oil Prices Go Up or Down?
The Obama Administration seems to think that oil prices are just manipulated by greedy Wall Street’ers. Contrary to the Administration’s belief, oil prices are influenced by two major factors.

1. The value of the U.S. Dollar.

2. OPEC.

The U.S. Dollar Influence on Oil Prices
U.S. oil prices are priced in dollars. If the U.S. dollar declines in value, that means any commodity priced in U.S. dollars will go UP in value (i.e. cost more). This includes agriculture prices and oil prices to name a few. If the U.S. keeps borrowing and printing money, that will just decrease the value of the U.S. dollar, thus making everything priced in dollars cost more.

OPEC’s Influence on Oil Prices
The other big influence on oil prices is the Organization of the Petroleum Exporting Countries or “OPEC” for short. OPEC was founded in Baghdad, Iraq back in 1960. Its original members are namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

Today, there are just 12 OPEC member countries, and they are:

– Algeria
– Angola
– Ecuador
– Iran
– Iraq
– Kuwait
– Libya
– Nigeria
– Qatar
– Saudi Arabia
– United Arab Emirates UAE)
– Venezuela

— Source: OPEC (PDF)

OPEC has meetings where its members can agree to increase or decrees the supply of oil on the open market thus influencing the price of oil. Saudi Arabia is the biggest oil producer, and has the most influence over OPEC. The Saudis have acted unilaterally at times to increase the oil supply if prices get “too high” to appease western politicians (Source: Reuters).

Definition of Insanity
It has been said that the unofficial definition of insanity is doing the same thing over and over expecting to get a different result. The Obama Administration has been contemplating again to release more SPR just this past August. Of course this has nothing to do with trying to get oil prices down just before the election does it?

As of last February (2012) oil prices have soared 178% since President Obama took office (report). Oil prices did come “down” temporarily due to increase oil supply and Obama releasing our strategic reserves. However like we said, this was a temporary fix. Since then, oil prices have hit a four month high.

“Oil prices hit their highest levels in more than four months on Friday, bolstered by the Federal Reserve’s steps to strengthen the U.S. economy and by anxiety about the specter of confrontation over Iran’s nuclear program.”

— Source: Washington Post (PDF)

Painting a Picture, but Not Solving the Problem
The Obama Administration’s attitude about the oil companies has been anything but supportive (article 2009)(article 2010)(article 2011)(article 2012). The Obama Administration has tried to make it a fashionable trend to hate oil companies as we fill our vehicles up with gasoline, drink water from plastic bottles, showering with shampoo bottles made from petroleum, and 1,000’s of other ever-day uses in plastics (Sources: reachoutmichigan.org and earthsciweek.org).

Although the idea of “green energy” sounds appealing, it has been a costly disaster when goverment gets involved, does not solve our energy problem, and total costs can be extremely expensive. Case in point:

“Green Energy” GM Volt – GM’s Huge Money Loser
The Obama Administration took borrowed money and spent some $81 Billion from the TARP program to bailout GM and Chrysler (chart). The Chrysler bailout was such a mess, that the Administration ended up giving control of the U.S. auto company over to Italy’s Fiat.

The Obama Administration and GM seemed to think that the Chevy Volt was going to be the the car to save GM and everyone would buy this “green energy” Obama supported car – until consumers saw the price tag. The GM volt first sold for $41,000+ with a $7,500 taxpayer funded rebate. The vehicle now sells for about $39,000. However with tax, license, registration, and depending on options can still easily run in the mid $45,000 range.

The funny, or rather sad part of what no one has told us until now, is that for every Chevy Volt sold, GM is losing as much as $49,000.

“Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds.”

— Source: Reuters, 09-10-2012

How long can you continue to produce something that you lose up to $40,000 per product. If the product doesn’t sell, you’re stuck with a depreciating asset that costs you some $88,000 each to produce. The GM Volt is a “Green” financial disaster by any math measure. Like it our not, oil is still the cheapest form of energy.

Oil Prices Soared Under President Obama’s Term.
The Obama Administrations anti-oil and pro-green energy mantra has been nothing but costly to consumers and a loser to business such as GM.

When Obama took office on January 20, 2009 U.S. oil prices (WTI) was $38.74 barrel (report).

As of 09-14-2012, WTI closed at $99 barrel [Source: Washington Post (PDF)].

Thus, despite U.S. government and OPEC intervention, oil prices soared $60.26 barrel or up 156% in the last three-and-a-half-years anyway.

Question. Didn’t the FED say that inflation was running about 2%? Oh wait – I forgot, we don’t count the 20-70% increase in grain prices just this year; nor are we to consider that we are paying 156% more in oil prices over the last three years either. Whew, sure glad we have government to tell us that inflation is only 2%. How could we deal with reality?

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Categories: Inflation