Inflation Stays Tepid in February: Or Does It?

The Consumer Price Index (CPI) was basically flat in February - even with volatile food and energy removed from the equation.  Prices ticked up a scant 0.1%, the Labor Department said Thursday.  Over the past year, prices have increased 2.1%, or 1.3% omitting food and energy, the smallest rise in six years.

Reported inflation statistics continue to remain low as the result of an excess capacity of workers, factory space and homes.  Until more of the nation's productive resources come into use and starts pulling workers off the unemployment line, the sellers of everything from sandwiches to machine tools have little ability to raise prices.  The problem is exacerbated by continued tightness in credit, which makes it harder to juice economic growth through bank lending to absorb the economy's substantial slack.

Thursday's report showed weakness across a range of categories.  Owner's equivalent rent, a measure of home costs that is by far the CPI's largest component, was flat in February.  Weak home prices and a glut of homes for sale have held down shelter costs.  Apparel fell 0.7% last month and personal computers fell 0.5%.

Some analysts and investors see inflation as inevitable in the longer run as the result of huge government budget deficits and the necessity to monetize those deficits with excessive dollar creation.  There also are concerns — both inside and outside the Fed — that the economy may have less surplus capacity than seems apparent, since some unused capacity will never be brought back online.  In addition, wages aren't keeping pace even with this tame inflation: real average weekly earnings fell 0.2% in February from January.  Over the past six months, average weekly earnings have been essentially unchanged.

According to the brilliant Dr. Williams of ShadowStats (http://www.shadowstats.com/), "anecdotal evidence continues to mount of higher prices across a much broader spectrum of products and services.  A short-lived dip in February energy prices has been followed by higher prices in March and accordingly, the CPI and PPI should show fairly strong gains in March’s reporting, following February’s 'contained' inflation.  Without other issues, such as dollar weakness, eventually — within six-to-nine months — the broader inflation issues also should surface in official reporting.  Upside risks for near-term inflation, however, remain severe, coincident with any heavy or panicked selling of the U.S. dollar and dollar-denominated paper assets."

Dr. Williams ascribes the relatively muted February data to a temporary drop in average gasoline prices.  However, a renewed surge in oil and gasoline prices in March 2010, suggests an upward swing in both the monthly and annual inflation rates for March.

If one uses ShadowStats' 1980 methodology for calculating inflation, the result is an annualized rate of nearly 10%, as opposed to the roughly 2% number reported by the Bureau of Labor and Statistics (BLS).  This explains why so many items seem to be jumping in price, while the official government numbers meticulously have been massaged to ignore them.

As to inflation-adjusted Gold and Silver Prices, if we use the 1980 highs in GOLD of $850 per ounce and the accompanying Silver high of $50 per troy ounce, the 2010 equivalents, according to Dr. Williams, would be approximately $7,500 per ounce and $435 per ounce respectively!

As we approach the Spring Equinox, here's to hoping the only thing that inflates is your wealth!

Marko's Take

We hope that you keep reading our essays and visit the sites of some of our co-conspirators in revealing the truth.  Toward that end, take a minute, if you have one and stop by and visit our friends at Phoenix Film Group (http://www.youtube.com/phoenixfilmgroup) and StockMavrick (http://www.stockmavrick.com/).  Or, take a gander at our own YouTube channel (http://www.youtube.com/markostaketv).  Five new episodes were filmed yesterday and our next one, on the legality of the personal income tax, will be posted in the next week.