Thursday, October 18, 2012

Think Inflation Is Not Here? Think Again!

Inflation is a function of economics that describes the purchasing power of money.   Generally speaking, the larger the money supply, the less each individual dollar is worth, and the less it can buy.   People usually think inflation means prices on goods and services are increasing, when in reality the value of the money they possess is decreasing.

According to Inflation Data, the inflation rate in September was 1.99 percent, which is very low and on the surface looks good.  If inflation was high, say, over 10 percent like the 1970s, then interest rates on things like cars and housing loans would climb, and it would indicate that the U.S. dollar was very weak. 

Why is this important?  For one thing, the U.S. dollar is THE reserve currency for the entire world.  People buy things like oil on international markets in dollars.  The dollar is in demand even though our own Federal Reserve is creating money out of thin air because of this.

The problem with the "official" core inflation rate is that it does not include food and fuel costs.   The increase in the price of gasoline and other fossil fuels has been well documented in the news, but I have not seen as much in the media about the cost of food rising, until now.

This piece on The Blaze shows just how much prices have gone up for 21 everyday items families might purchase based on data from the Bureau for Labor Statistics.  The  article compares price data from 2002 and 2012, which covers from the early parts of the Bush administration to the Obama administration.

Here are some highlights:

  • Eggs: 2002  – $1.03; 2012 – $1.80 or a 73 percent increase
  • Loaf of Bread: 2002  – $1.01; 2012 – $1.41 or a 39 percent increase
  • Ground Beef: 2002 – $2.28; 2012 – $3.69 or a 61 percent increase
This is one of the reasons why in my previous post during National Preparedness Month in September 2012 I urged readers to begin adding to their food stores.  The cost of food is rising! With the Federal Reserve adding further fuel to the inflation fire via quantitative easing, the pressure on the dollar's value is only going to increase.  

There is no doubt food and fuel prices are going to increase. By adding to the amount of food you store in your house now, you are deferring these additional costs into the future and ensure that in a crisis you have the means to sustain your family.

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