Merryn's Blog

Inflation in America: the game's up

Deflation is the great bogeyman for the powers that be. So it's no surprise that the official inflation figures paint an entirely false picture of everyday prices.

Think the US is nearer deflation than inflation? Think again, says shadow MPC member Peter Warbuton in the Halkin Report.

The truth is that consumer price inflation (CPI) numbers across the world are highly suspect. The methods used by different countries to calculate them "vary to a remarkable extent", something that makes them hard to compare. But worse, look at the numbers they churn out compared to reality in the shops and they seem to be just plain wrong.

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Right now, the official CPI in the US is running at 1.1%. But look at the news, and that seems unlikely.

A US health industry report has just noted that the cost per capita of providing health care services has risen 7.32% over the last 12 months. And alert consumers will have noticed that a jar of Walmart coffee has recently fallen in size by 14% and risen in price by 6%. Yet the official rate of inflation for "beverage materials" is -0.7%.

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The same goes for cereals. We know there has been a "staggering rate of inflation" for the ingredients for them. Yet the index has their price falling by 0.5%.

Look at this kind of thing and it seems that the official CPI is "painting such a distorted picture of national inflation as to lose all credibility." Deflation is a great bogeyman for the authorities. As long as they can keep us all convinced it is a threat they can keep interest rates low and force us to either spend our money in a desperate attempt to get some value from it or to invest it in increasingly risky markets.

But, as is becoming increasingly clear, it doesn't really exist. Instead, the only major thing actually falling in price in both the UK and the US is houses. Note that the Nationwide numbers out today show prices down another 0.7% in October, and 1.5% over the last three months.

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