The Market Oracle: World Economy - US Inflation Understated in Official Statistics - Prices are the Cart, Money Supply is the Horse - by Peter Schiff

For the complete report from The Market Oracle click on this linkUS Inflation Understated in Official Statistics - Prices are the Cart, Money Supply is the Horse - by Peter Schiff

Inflation has only one cause and that is the Federal Reserve itself. In the United States , the supply of money and credit is regulated by the Fed. Since inflation is by definition an increase in the supply of money and credit, only the Fed can create it. If the money supply were held constant, increases in some prices would be offset by decreases in others. The result would be no overall inflation. In fact, without government created expansions of the money supply, the natural tendency of prices would be to decline as technology allowed for more efficient production of goods and services. So while most regard the Fed as the primary inflation fighter, in reality it is the sole inflation creator. The main problem for consumers is that most inflation is not detected by the Fed's preferred measuring tools. As a result, inflation has been allowed to grow unchallenged.

For example, on Wednesday the government told us that consumer prices as measured by the CPI rose by only 2.8% over the past year. My estimate is that the actual rise was at least three times as great. The report showed that energy prices only rose by only 5.3%. Given that crude oil prices are up over 35% and heating oil prices are up 20% during that time period, how is it possible that energy prices are up only 5%? Are other energy costs falling to compensate -- firewood perhaps? The same CPI report claimed that medical costs rose by 4.6%. As a small business owner, I can't remember the last time my company's health insurance premiums rose less than 5% per year, and they typically rise at an annual rate of more than twice that. Perhaps the most incredulous of all the data in this week's CPI report is that food prices only rose by 4.5% during the past year. I don't know where the guys at the Bureau of Labor Statistics buy their groceries, but I'm spending at least 15% - 20% more for food this year than last. Wheat prices alone have practically doubled in the past year! The last time I checked, people tend to eat a lot of wheat. Does anyone really believe food prices are only up 4.5%?