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Published On: Tue, Mar 20th, 2012

Heading for double-digit inflation?

Whenever someone mentions inflation, Paul Krugman is all over the statement, trotting out the CPI which shows relatively low overall price increases at about three percent. (He holds this as “proof” that government can massively increase the monetary base and spread dollars around without having any ill economic effects.)

However, those of us who regularly go grocery shopping and who purchase fuel have seen a much different picture, one that Krugman claims does not exist. And now there is more proof that inflation is worse than what the government and its political operatives (like Krugman) have been claiming:

Forget the modest 3.1 percent rise in the Consumer Price Index, the government’s widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.

The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don’t look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans’ typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.

The institute contends that to get a good read on inflation’s “sticker shock” effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move.

The article continues:

The group maintains that this index better measures the real-world impact of price changes, particularly for people on a budget. And, largely as the result of the recent run-up in gas prices, this “everyday price index” (EPI) suggests that Americans are being pinched far more tightly than the official inflation measure would have you believe.

Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government’s inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.

In other words, the daily purchases definitely are in the crosshairs of inflation, and I only can imagine that things will get worse. Krugman likes to claim that commodity prices are “volatile,” which supposedly explains why they have skyrocketed. It would have nothing to do with Ben Bernanke’s policies at the Fed.

Of course, let us be honest. The only think in the end that Keynesians have is inflation, and they believe that if the government inflates enough, somehow this will “rescue” the economy. Yes, reducing real incomes of Americans by creating more dollars somehow is going to “strengthen” the economy. Right.

Check out the “Krugman in Wonderland” posts here on DOB – click here


William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

Read more at “Krugman-in-Wonderland”

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About the Author

- William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

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