Fed doesn’t appear to understand real inflation as food prices soar 14% in just the past two months
Last week Janet Yellen and the Federal Reserve chose to raise interest rates a quarter point at a time when economic data has been at or near recessionary levels for at least the past two quarters. ¬†And of significance was the FOMC’s claim that inflation was still running below the central bank’s target rate of 2%.
The Federal Reserve approved its second rate hike of 2017 even amid expectations that inflation is running well below the central bank’s target.
In addition, the Fed provided more detail on how it will unwind its $4.5 trillion balance sheet, or portfolio of bonds that includes Treasurys, mortgage-backed securities and government agency debt. – CNBC
However, the limited scope in which the central bank records inflation is almost comical as the list of items they use for their inflation barometer as a percentage of consumer spending is less than 10% of what most Americans tend to purchase each month. ¬†Because if they were to actually chart and report inflation numbers for food, energy, housing and rents, medical care, and education, then the true rate of inflation per annum would have ranged between 6 and 10% every year over the past nine years.
And in a new report published on June 18 regarding the past two months of change in food price inflation, the cost across the board for average Americans has climbed a whopping 14% since April.
I do hope though that the Amazon deal and the entire price impact of the internet brings some deeper discussion broadly and within the halls of the Fed on consumer inflation and what drives it because I still counter that the 2% central bank inflation goal should be challenged as to why it makes any sense. On the goods side, technological breakthroughs and efficiency will always be a natural suppressant on prices. The Compaq Portable II, cost $3,499 in 1986. If it rose by 2% per year since it would today be about $6,300. Instead something similar is about $1,000. I‚Äôll throw out hedonic adjustments that pollute the CPI/PCE readings for now. Honestly speaking, it is where government and the Fed have been most influential that has seen the most amount of inflation. Examples being housing, whether to buy or rent, tuition, and medical care. I won‚Äôt now get into asset price inflation.
Bottom line, from a secular trend standpoint we will always have price pressures on goods with commodity prices of course being a cyclical variable and typically sticky services inflation mostly because of the influence of misguided government policy. Thus, the Fed needs to dig deeper into why and how they want to achieve this made up 2% figure. Lastly and back to food prices, as everyone is talking about food deflation, this is the chart (above) on the CRB food stuff index which is up by 14% in the past two months. ‚Äď King World News
Since American consumers have been pulling back immensely in their retail and dining out purchases, the normal reaction to this phenomenon should have been actual deflation since supplies would have begun to grow across the board. ¬†However this leaves just one primary reason for prices to be rising this fast, and that is that monetary inflation is now flowing down into the general economy at a much faster rate.
Except for politicians who applaud fraudulent economic data, and Wall Street algo’s that trade not just on reality, but also on headlines and fake news, the only choir that the Fed is singing to are the stock markets, and as a result they appear quite willing to allow their credibility to be completely washed up.
Kenneth Schortgen Jr¬†is¬†a writer for The Daily Economist, Secretsofthefed.com,¬†Roguemoney.net, and Viral Liberty, and hosts¬†the popular youtube podcast on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.