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Inflation Predictions, Political Impact, and More



April 26, 2011 – Comments (4)

Author: WhereamINow


USDA ups Inflation forecast for meat:

"As forecast right here at EPJ, price inflation is going to heat up significantly in the second half.  Gas prices are already climbing. Clothing prices are starting to uptick and now the US Department of Agriculture is warning on meat prices.

The USDA now says meat prices will climb 6% to 7% this year over 2010, up from its March 25 forecast for a 4.5% to 5.5% increase.

Beef prices are projected to jump 7% to 8%, up sharply from the government’s March estimate of a 4.5% to 5.5% rise. Beef prices are already running 12% higher than they were a year ago.

Pork prices, which gained more than other meats last year, will be a half-percentage point higher, rising 6.5% to 7.5% over 2010.

Depending on what happens to money supply growth, the price hikes could be even greater than these USDA forecasts." 

McDonald's has already doubled its inflation forecast as well.

Forecasting Its Impact On Politics

The timing could not better, folks. Consider this, inflation has already been a destabilizing force in the Middle East, most likely as a secondary spark rather than a primary, but certainly a force.  According to the World Bank, global food prices rose 36% last year (you can probably double that, but whatever.)<------ Lots of scary stuff in that World Bank link, but the scariest thing is their general economic ignorance, in which food prices rise because other stuff rises in price (but of course, no reason is given why those things rose in price!)

Though QE2 is coming to a close, don't expect an immediate slump and contraction.  Just as it takes time for new currency to bid up prices, it takes time for prices to stabilize and contract if the stimulus is removed. It all depends on the behavior of the market actors, and we know how often they want to do their own thing :)

So we can reasonably expect that inflation will still be upticking towards 10% for food and energy as the Presidential primary debate season begins.  How delightful? 

This means that there will be questions-a-plenty for our field of candidates on monetary policy, the dollar, economic approaches, and of course, the Ben Bernank.

Here's Business Insider's Joe Wiesenthal's view:

"It's inconceivable to think that in the GOP primary, candidates won't be asked for their position on Bernanke, quantitative easing, the role of the dollar, and of all the candidates, only Ron Paul has made a career on all these issues. In fact, after decades fighting his fight, he must be somewhat shocked that in just the last few years, his ideology has become so popular (or maybe he's shocked that it took so long).

In 2008, the GOP primary was dominated by...candidates like Mitt Romney and John McCain and Fred Thompson and even Rudy Giuliani. They were content to basically ignore what Ron Paul had to say. This time, they'll be fighting on his turf."

Like I said, how delightful?

Why I'm So Darn Excited

I'm not excited because Ron Paul is going to win. This isn't a racetrack. I'm not betting on horses. The real battle is the ideas. Whose ideas are going to win?  For at least half a century, the ideas of totalitarians have dominated the popular culture. Finally, we got to see a battle unfold where the ideas of liberty will get a fair hearing (unlike the sham of 2008). Oh, I'm sure the Republican leadership will try anything to keep him from speaking his voice, but I'm at least optimistic that his message will reach a far broader audience this time around.  Again, it'll be fun. Enjoy it. It might be our best shot. 

Last Word of Warning

The elephant in the inflation-debate living room is that pesky small sum of $1.47 Trillion and counting in excess reserves. Is The Ben Bernank going to pull a Joker and torch it in front of his compadres? (I can see him exclaiming "this country needs a better class of criminals!")

What to do... What to do.... And why the heck is paying interest on it??? EPJ tackles those questions in an amusing write-up here:

One important example of  Bernanke's new Federal Reserve "tools" is the paying of interest on deposits that banks leave with the Federal Reserve. It has resulted in over a trillion dollars accumulating at the Fed, as what is known as "excess reserves". The Fed is paying banks EIGHT times equivalent market rates when they keep the funds as excess reserves.

If I may quibble with Mr. Wenzel, it's not eight times the "market rate" since there is no real market rate for low-risk assets anymore. But his point, that on the Fed-centrally-planned market, the banks would earn 1/8 as much in interests for low-risk/no-risk investments is well taken. 

Which leads to questions: even if we accept the MMT story that this money is merely an asset swap, where does the money come from to pay the interest on excess reserves? Over a three month period, that interest adds up to $1 Billion. Where did that $1 Billion come from.

And if this is simply an asset swap, where is the other $1.47 Trillion in assets?

I'm not being a smart aleck, I really don't know. If you do, feel free to comment.

David in Qatar

4 Comments – Post Your Own

#1) On April 26, 2011 at 11:14 AM, buffalonate (48.15) wrote:

The USDA also reiterated their forecast for 3% food inflation for the rest of the year.  The CEO of Walmart CEO says inflation is 5%.  The end of the world is coming.

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#2) On April 26, 2011 at 11:47 AM, Goofyhoofy (< 20) wrote:

**I really don't know. If you do, feel free to comment.**

I don't know. Nobody does. What I do know is that it's shameful that the Fool elected to make this repast of political drivel and nonsense the Post of the Day. It is so larded with nonsense that it's difficult to know where to begin.

 Will there be inflation? We can only hope. Mild inflation is good, far better than deflation, which causes people to put their cash back in their pockets waiting for better prices, and perpetuating a self-fulfilling prophecy of ever more, ever worse deflation and stagnation. Ask Japan how dandy that is.

Using gas prices as a proxie is addle headed, that's why they are not included in "core inflation", because they bounce all over the place and always have. (Hint: spring season generally shows a spike, and refineries produce less as they change formulations, and the 'driving season' opens in earnest.) If fuel prices last, they 'bake' into the costs of other goods via manufacturing and transport, they are meaningless in and of themselves.

It's unfortunate that you see the excoriating of Bernacke by Tea Partiers and other ignorant buffoons as a good thing. What has been done, so far, is to stave off a world wide collapse of the economic system, and to attempt to achieve a 'soft-landing', which is still in progress. Those with even the slightest knowledge of history might recall that no such thing was attempted in 1929, which three years later got us 1932. In 2008, three years later we got to 2011.

 Could you possibly put on your thinking hat and notice a difference? Could Ron Paul? Could whatever brainiac at the Fool elected to make this Post of the Day try it too? 

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#3) On April 26, 2011 at 12:04 PM, MegaEurope (< 20) wrote:

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#4) On April 26, 2011 at 12:34 PM, ETFsRule (< 20) wrote:

The USDA also reiterated their forecast for 3% food inflation for the rest of the year.

Yep. Food inflation in the US is still at a below-average level, & is expected to stay that way for the foreseeable future. Link.

It's funny how none of these doom-and-gloomers were talking about food inflation back in 2008, when we actually had a fairly high level of food inflation (6%) in the US.

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