Why is inflation still low ?

Iamrenewable · Coal Joined: Sep 29, 2005 Posts: 2

Surging energy prices...
Surging food prices...
Surging metal prices...

And still no real sign of problematic inflation...

Is it because production of several goods is so cheap in China and India ?

I am puzzled... Crying or Very sad

UIUCstudent01 · Intermediate Crude Joined: Mar 10, 2005 Posts: 894

Because your assumptions are all wrong.

(That's a secret arguing technique I've learned.)

Inflation is measured by a certain basket of goods. I know energy and food aren't on that basket of goods. (or at least, that's what a peakoil.com education has told me..)
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Iamrenewable · Coal Joined: Sep 29, 2005 Posts: 2

I know....But...

You need energy and metals to produce goods so it must have an effect on the price...

But because of cheap chinees labor the price remains relatively low...

Things like electronics and stuff...

I know they put some of these junk in the belgian index to give a better

representation of it´s true value Crying or Very sad

. (read "mask inflation")

TorrKing · Posted: Thu Apr 20, 2006 2:51 am Post subject: Re: Why is inflation still low ?

I think the problem is a connected to the subject raised in this thread: http://peakoil.com/fortopic19269.html

The inflation may not have kicked in yet, but will pretty soon. But it may actually go longer than we expect, because the increased costs is absorbed by the companies paying less revenues to their owners. Investors accepts that there are good times and bad times, as long as the whole market experiences the same.

Because of that prices will not start increasing very much (still a little) until the investors start realizing that this increase of costs is permanent and not simply a fluctuation in the market.

Torjus Gaaren

UIUCstudent01 · Intermediate Crude Joined: Mar 10, 2005 Posts: 894

The question is, when all the Chinese start becoming consumers, will we be all of be suddenly poorer because they can buy our stuff?

It seems to me as a casual interested observer that inflation is succesfully masked so as long as the Chinese don't become equals... (But then their labor would be expensive... but then again, they have an enormous industry base for the U.S. (and world) that can't be easily shipped out...) If the Chinese demand higher wages, then we will have to comply (especially if they get their raw resources from countries amiable to their needs).

In the future, the Chinese can and probably will demand some concessions. Oh, did you know that they plan to industriallize 300 million (the size of present day U.S.A.) in the next 20 years? That's an amazng plan... that's alot of potential consumer demand. It's also alot of production... The energy situation throws a bit of a wrench in it.
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Doly · Expert Joined: Dec 03, 2004 Posts: 4034

I think there are two main reasons (and I leave it for the experts to confirm or deny):

1. They are cleverly talking about "core inflation", that is, inflation without prices of food and fuel. Food is one of the first things affected by rising prices of oil.

2. Inflation depends on what the government does. If the government decides to be moderate about printing money, or clever about where all the printed money goes to, inflation can't go too high, because the money simply isn't there.

nuhax · Tar Sands Joined: Jun 18, 2005 Posts: 62

Inflation is caused by an increase in money supply.

Rising prices are not the same as inflation. Rising prices for goods are a SYMPTOM of inflation. In other words, just because prices rise it does not mean there is inflation. But if there is inflation then prices will rise inevitably.

The government tracks a basket of goods as an INDICATOR or MEASUREMENT of inflation's impact on the economy and one basket of goods is what is referred to (as noted by the OP) as the core inflation # (minus gas, food and some other stuff). Many people feel the core inflation # is not an accurate indicator/measurement of inflation, but it is what is usally referred to and looked as the main inflation indicator.

This is because a few years back the US government changed how inflation is tracked and the new formula/methodology and basket of goods is subject to dispute. Some people believe it is rigged to show a # that underestimates inflation, with the benefit to the US govt. because of lower COLAs and higher GDP.

Supposedly, if the same methods user in the Carter administration were still being used then inflation indicators would be considerably higher.

firestarter · Light Sweet Crude Joined: Mar 19, 2006 Posts: 1111

bobbyald · Posted: Thu Apr 20, 2006 7:45 am Post subject: Re: Why is inflation still low ?

Inflation is an increase in the supply of money – nothing more, nothing less.
Usually this results in rising prices (it won’t if matched by productivity).

If energy prices increase then, without an increase in the money supply, there will be less demand for other goods and the price of these will fall – Overall effect: No inflation.

In fact rapidly rising energy prices may disrupt the economic balance which accompanied by falling prices elsewhere results in deflation!

What is happening now accompanied by the huge credit bubble should therefore be the start of a deflationary depression but your government has plans. The US will not follow the path of Japan, it will print money like never before, you will then see real inflation. The smart people know this and are converting dollars into the only money whose supply cannot be significantly increased – GOLD.

(Also the government are lying about inflation – it is already up to a modest 5 -7 %)
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MOCKBA · Heavy Crude Joined: Sep 05, 2005 Posts: 460

Dukat_Reloaded · Light Sweet Crude Joined: Jul 31, 2005 Posts: 1007

Apparently according to the IMF, worldwide economic growth was 4.6% last year (i think), and this year is expected to grow at 4.9%. That is alot of growth and currently we are having problems keeping up with demand and that is what is raising prices in commodities. If the world econemy was growing slower, there would not be much inflation right now. Wage inflation is the kicker into hyperinflation, there has hardly been any wage inflation at all (atleast in the lower paid work).
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dbarberic · Heavy Crude Joined: Sep 27, 2005 Posts: 240

As someone else pointed out, real inflation is much higher than what is reported in the CPI number.

A guy by the name John William's actually started a consulting firm called Shadow Government Statistics that follows and tracks the real CPI, GDP, unemployement numbers, and other "official" stats.

He got into the business because he was working with companies trying to figure out why their business forecasting models (which used government stats) were no longer accurately predicting future trends. What he found is that key methodology changes in addtion to sometimes outright political manipulation are the reason why the stats are no longer showing reality.

This is an image from his website showing what true inflation rate is compared to what is reproted currently:

Real CPI is around 7% and he actually estimates that the true unemployement number is around 12%. That is nearly as bad unemployement as the Great Depression!

http://www.gillespieresearch.com/cgi-bin/bgn/

If your interested more in this topic, there is a free audio MP3 interview you can download from here:
http://www.financialsense.com/Experts/2005/Williams.html