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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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%.

Advertisement - Article continues below

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.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019

Brace yourself – the global economy might be healthier than it looks

Investors have been worried about a global recession since the start of the year. But the latest indicators suggest things might not be so bad. John S…
2 Apr 2019

The US economic downturn: it’s only a matter of time

With the US economy facing headwinds from trade wars to slowing global growth, talk of a recession is picking up.
22 Feb 2019

Most Popular


Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020

Where will markets be in 2030? Here are 20 forecasts for the 2020s

A lot has changed in the last ten years – stockmarkets soared, technology transformed our lives and politics has changed beyond measure. Here, Dominic…
14 Jan 2020
Personal finance

How much the state pension will rise by this year

While Boris Johnson promised to hold a full budget within 100 days of his election victory, many of the details of next year’s state pension increases…
10 Jan 2020

Money Minute Wednesday 15 January: UK inflation and house prices

In today’s Money Minute, we look ahead to the latest UK inflation and house price figures, plus we have Germany’s GDP data for 2019.
15 Jan 2020