Here is a view of inflation that tends to fit my outlook for 2010 :
by Larry Edelson on December 28, 2009 at 8:30 am
I’m talking about inflation data courtesy of the Bureau of Labor Statistics (BLS).
I find the stats startling because it’s proof positive that inflation is far from dead. And as I just mentioned, even more so because the BLS’s inflation data is contrived and manipulated to almost always show less inflation than there really is.
Even more astonishing, the figures I’m about to review with you are most likely conservative, and err on the low side of the spectrum.
Consider the following price increases which have occurred since the beginning of the financial crisis in October 2007.
In the 24 month period since then, a time when deflation was supposedly striking everywhere …
Food and beverage prices increased an average of 5.6%
Cereal and bakery prices jumped 11.5%
Sugar and sweets prices, up 11.8%
Cooking oils, up 11.6%
The cost of medical care increased an average of 6.7%
Medical care services, up 7.1%
Hospital services, up 14.0%
The cost of education (tuition) at private schools jumped 10.7%
Educational books and supplies, up 14.9%
About the only sector of the economy where prices either fell or rose modestly is, not surprisingly, housing, where the overall cost of providing shelter for a family rose a meager 2.4%. But even that is a far cry from the deflation everyone is talking about in housing.
The seeds of inflation have not only been sown, they’ve been sprouting since the financial crisis began.
So what does all this mean? As I said earlier, considering that these figures cover a 24-month period where deflation was supposedly striking every sector of the economy, it means inflation is not dead. In fact, it’s not even close to dead.
It’s merely hibernating for a bit, waiting to bust wide open.
I believe 2010 will be the year where most are shocked at how much inflation takes off.
It’s inevitable. Periods of deflation in this country have been few and far between, and when they occur, they last no more than about three years. Then, prices take off to the upside again.
It’s going to happen. No doubt about it. There is no way that inflation cannot explode upwards when …
A. The Fed has printed well over $2 trillion in fiat money which it will have a hard time extracting from the public now that it’s out there, no matter what the Fed says.
B. Washington itself is flat broke and will need to print even more monopoly money to keep itself going.
C. Most natural resources and life’s basic necessities are in short supply, while demand for them is soaring worldwide, especially in Asia.
D. Companies all over the world need to actually raise prices to get back some sort of decent profit margins.
E. The government is getting involved in healthcare, which, unquestionably, will be inflationary for almost every aspect of life down the road.
But mark my words: The inflation that I see coming will be unlike past inflation waves. It will not be driven by wages, labor unions, or even by rising oil prices.
Instead, it will be driven almost exclusively by the long-term demise of the dollar, which despite a recent rally, will continue its decline yet again in 2010.
And, it will be driven by uncertainty … by the growing recognition that Washington (and other governments) is broke … and more.
My view: Don’t bet on deflation. It’s largely already come and gone.
So what can you do to protect yourself from the inflation I see coming? Invest your money based on the fact that the dollars in your pocket will not be worth much in the future. That means seeking out investments, such as tangible assets, that protect and grow your wealth as paper monopoly money loses its purchasing power.
With the new year rapidly approaching, not much is happening in the markets. So I’d like to take this time to show you some stats that simply amaze me.