Inflation

Inflation

Who would have thought that inflation, defined as an increase in prices, is creatively described using countless other words?

It is as if monetary policymakers do not want to call a black cat black because it clashes with their agenda of tightening in a bust, even if that means putting most of the population in the poor house. 

Fiction and invention are the fabric of life, so let’s look at how policymakers resort to creative definitions of inflation to manipulate reality

Mainstream economists use core inflation data as a yardstick for prices in the economy.

But core inflation data is meaningless since it measures changes in the cost of goods and services, excluding those from the food and energy sector.

Put simply, core inflation hides the reality of rising prices for non-discretionary household costs.

The Uk is experiencing food hyperinflation as food prices exceed 50% last year, according to an independent survey of a basket of goods bought one year ago and that same basket of goods compared with today. 

Escalating war in the east front in Europe has led to spiraling global costs of fertilizers and energy. Moreover, currency debasement due to excessive currency creation means the currency has become diluted and supply chains are collapsing. 

Hunger games, food hyperinflation

I see food riots deadhead unless there is a policy U-turn.

War in Europe has disrupted the continent’s breadbasket, and the north sea pipeline, a critical energy pipeline to Europe’s engine, Germany, is now a chunk of broken metal concrete beyond repair lies at the bottom of the Baltic sea. 

In the US, the end of COVID stimulus cheques has been greeted with miles of people in cars waiting for more than 5 hours as struggling households wait for free food handouts from the food banks.    

The ongoing food crisis, spiraling prices, and shortages, which could lead to food riots, can not be tamed with higher central bank rate hikes and is no solution to empty bellies. 

The reality is that we have hyperinflation in double digits, but if the Fed keeps hiking rates, we could see famine in Europe as supply chains collapse. The EURO and GBP will go into free fall if Fed chair Powell keeps hiking rates. Further rate hikes from here could only now collapse supply chains leading to more inflation. 

Futile inflation fight, a tsunami of mortgage defaults and foreclosure

Central banks have already lost the inflation fight.  

US mortgage rates are now over 7%, so US households are battling massive layoffs, a cost of living crisis with skyrocketing food and energy costs, and mortgage payment increases of over 40% per month on an average variable rate mortgage. 

The mother of all real estate crashes is dead ahead

Fed rate hikes are pitiful in the face of hyperinflation.

Disinflation, the slowing down of the rate of price increases is the latest joker word to describe hyperinflation. But any meaningful rate hike in an economy supported by cheap, fake money for over two decades could lead to biblical depression. 

I wrote in a piece entitled, Uninvestable Markets, May 2022, and that is what we have until policymakers get real and give up the inflation fight.