Not that kind of “Soaring inflation”

The most commonly referred to inflation rate in the U.S. is the Consumer Price Index (CPI), specifically the Consumer Price Index for All Urban Consumers (CPI-U). Produced monthly by the U.S. Bureau of Labor Statistics, this index captures the average price changes for products and services used daily by around 93% of the American population. It's calculated based on a sampling of retail prices and offers a snapshot of the inflationary trends in consumer goods and services.

Additionally, the CPI-U includes separate sub-indexes that focus on specific categories such as food, energy, and all products excluding food and energy. These sub-indexes allow for more detailed tracking of inflation in various sectors, providing valuable insights into how different areas of the economy are being affected by price changes. Overall, the CPI-U and its sub-indexes serve as key tools in understanding and analyzing inflation in the United States.

Originally, the Consumer Price Index (CPI) was determined by comparing the price of a fixed basket of goods and services over two different periods, known as a cost of goods index (COGI). As time went on, the U.S. Congress shifted its view, embracing the idea that the CPI should be a reflection of changes in the cost to maintain a consistent standard of living. This led to the evolution of the CPI into a cost of living index (COLI).

Over the years, the methodology for calculating the CPI has seen numerous revisions, guided by the U.S. Bureau of Labor Statistics (BLS). The changes aimed to remove biases that previously caused the CPI to overstate the inflation rate. The updated methodology takes into account factors like the quality of goods and substitution, where consumers change their purchasing patterns in response to price fluctuations. These changes have generally led to a lower reported CPI.

Despite the official rationale for the modifications, some critics see the changes in methodology, and the switch from COGI to COLI, as deliberate manipulation to enable the U.S. government to report a lower CPI. John Williams, a noted American economist and government reporting analyst, is among those who prefer an inflation measure based on the original CPI methodology, which utilized a basket of goods with fixed quantities and qualities.

Brandon Smith - Inflation Is About To Come Back Hard

Perhaps one of the most bizarre recent developments in economic news has been the attempt by establishment media (and the White House) to declare US inflation “defeated” despite all the facts to the contrary. Keep in mind that when these people talk about inflation, they are only talking about the most recent CPI, which is supposed to be a measure of current inflation growth, not a measure of inflation already accumulated. But, the CPI is easily manipulated, and focus on that index alone is a tactic for misleading the public on the true economic danger.

The way current US inflation is presented might seem like a fiscal miracle. How did America cut CPI so quickly while the rest of the world including Europe is still dealing with continuing distress? Is “Bidenomics” really an economic powerhouse?

No, it’s definitely not. I have addressed this issue in previous articles but I’ll dig into inflation specifically, because I believe a renewed inflationary run is about to spark off in the near term and I suspect the public is being misinformed to keep them unprepared.

If we calculate CPI according to the same methods used during the stagflationary crisis of the 1980s, real inflation has been in the double digits for the past couple years. This constitutes galloping inflation, a very dangerous condition that can lead to a depression event.

There are multiple triggers for the inflation spike. The primary cause was tens-of-trillions of dollars in monetary stimulus created by the Federal Reserve, the majority of which took place on the watch of Barack Obama and Joe Biden (there have been multiple GOP Republicans that have also supported these measures, but the majority of dollar devaluation is directly related to Democrat policies). This epic “too big to fail” stimulus created an avalanche effect in which economic weakness accumulated like sheets of ice on a mountainside. The final straw was the covid lockdowns and the $8 trillion+ in stimulus packages pumped directly into the system. Then, it all came crashing down.

To give you a sense of how bad the situation is, we can take a look at the Fed’s M2 money supply (they stopped reporting the more complete M3 money supply right before the crash of 2008). According to the M2, the amount of dollars in circulation jumped around 40% in the span of only two years. That is an epic amount of money creation and I would argue that the economy still hasn’t processed all of it yet.

There have been too many dollars chasing too few goods and services. Thus, prices rise dramatically, with the cost of necessities increasing by 25%-50%. Think about that for a moment…it now costs us 25%-50% more per year to live than it did before 2020, and it’s not over by a long shot. Houshold costs are still climbing, and since inflation is cumulative we will likely never be rid of the increases that are already in place. But if that’s the reality, why is CPI going down?

The main reason has been the central bank pumping up interest rates. The more expensive debt becomes, the more the economy slows down. That said, the Fed has remained hawkish for a reason; they know that inflation is not going away. They need help if they’re going to convince the public that inflation is no longer a problem.

Enter Biden’s scheme of dumping America’s strategic oil reserves on the market as a means to artificially bring down CPI. Energy prices affect almost all other aspects of the CPI index, and when energy costs fall this make it seem like inflation has been tamed. The problem is that it’s a short term fraud. Biden has run out of reserves to dilute the market and the cost of refilling them is going to be exponentially higher. This is why you now see gas prices rising again and they will probably keep rising through the rest of the year.

The Fed doesn’t necessarily have to keep printing for inflation to persist, they just had to set the chain reaction in motion. The recent Fitch downgrade of the US credit rating is not going to help matters as it encourages foreign investors to dump the dollar and treasuries even faster.

To be sure, there is still the matter of the battle between deflationary factors vs inflationary factors. In October, the last vestiges of covid stimlus measures will finally die, including the moratorium on student loan debt payments – That’s trillions of dollars of loans pulling billions in payments each year.

Not only that, but when those loans were put on hold, millions of people magically had their credit ratings rise, which means they had access to higher credit card limits and a vast pool of debt. Now, that’s all going away, too. No more living off Visa and Mastercard means US retail is about to take a considerable hit along with the jobs market.

Then there’s the Fed’s interest rate hikes which are now about as high as they were right before the crash of 2008. The same hikes that helped cause the spring banking crisis (which is also not over). The US will be paying record interest on the national debt, consumers will be using far less credit and banks will be lending less and less money.

So yes, there will be competing forces pulling the economy in two different directions: Inflation and deflation. However, I would argue that inflation is not done with us yet, and that the Fed will have to hike a few more times to suppress it in the short term. Brandon Smith