What's Up With Inflation?

Most people have probably noticed by now that prices have been rising of late for many of the goods and services they purchase. Wondering what the latest U.S. inflation rate is? Well this Thursday we will find out - just keep in mind that the government's report isn't always the most accurate measure of "real" inflation. Tim Iacono talks more about this, as well as the most recent inflation reports released by China and the U.K., in his blog post below.

The latest reading on consumer prices in the U.S. will be released on Thursday and there have already been rumblings about the Labor Department printing a surprisingly big number after last month’s 1.5 percent increase, the biggest jump in government reported consumer prices (which may vary considerably from your personal experience) in 19 months.

If there’s one thing that the U.S. government’s economists and bean counters have become quite adept at over the years, it is ensuring that inflation doesn’t come in too hot, so, don’t get your hopes up for too big of an upside surprise.

In China, the latest data showed consumer prices rising at a 4.9 percent year-over-year rate, down from the 5+ percent rate of a month or two ago but still causing problems amongst the population since food prices are rising at more than double the overall rate.

[Hmm... Here's an interesting one from Google - if you search on "China Inflation" on Google News, atop the list you get stories about gold in China rather than inflation in China.]

Anyway, Reuters reports that ex-food inflation is now a big concern in the Middle Kingdom:

Chinese inflation hit a lower-than-forecast 4.9 percent in January, but price pressures excluding food were their strongest in at least a decade and will force the central bank to keep tightening monetary policy.

In a tentative sign that its actions so far, including higher interest rates and lending restrictions, have started to bite, money growth eased to its slowest pace in six months in January at 17.2 percent year on year.

Now, I don’t know about you, but whenever I hear something like money supply growth “easing” to 17.2 percent, it reminds me that some parts of the world’s financial media (along with most of its economists) have gone completely mad.

Yes, future historians will one day look back and laugh at the naive belief of our era that, somehow, money supply growing at three or four times the rate of government reported inflation was somehow sustainable.

In the U.K., they continue to have a little inflation problem too and, as the Bank of England has been saying for a few years now, higher prices are just a temporary development. The Telegraph reports that BOE Chief Mervyn King had to write another letter to the Chancellor this month to explain why:

Mr King continued to blame the over-target inflation on “temporary effects”, citing the increase in VAT to 20pc at the start of the month, the fall in the pound and soaring commodity prices.
…
Mr King made the comments in his latest letter to the Chancellor after the Office for National Statistics (ONS) reported that higher oil prices and the recent VAT rise drove CPI inflation from 3.7pc in December to its highest point in more than two years.

Importantly, a broader measure of inflation in the U.K. that includes some of the costs of homeownership is now at just over 5 percent.

What will U.S. inflation look like on Thursday?

Despite soaring gasoline prices (I should know, we just got back from California) and with nearly every other measure of prices in the U.S. coming in at some multiple of the official rate of inflation, you’d think that eventually we’d see some of this show up in the government’s consumer price data, particularly since you read reports daily about manufacturers finally passing their rising input costs along to consumers.

Maybe Thursday will be the day.

This post was republished with permission from The Mess That Greenspan Made.