Despite that consumer prices rose last month at the fastest pace in 17 years, the financial markets are ignoring the CPI today because the retracement in commodity prices over the past 4-6 weeks is considered to have tempered the effects of inflation in recent weeks. However, the market often overreacts to such data because most traders don't consider that past commodity price rises take about 6-9 months before they show up in consumer prices.
We are only now beginning to see the effects of wholesale inflation on consumer inflation. This fall, we will begin to see significant price increases for food products at the grocery store, including 20% price increases from many major food manufacturers like Kraft, Sara Lee, Hormel, Kelloggs, General Mills, etc.
The Fed is betting on reduced demand for many products that contain commodities, in order to dampen prices. They are also betting that while prices have risen substantially over the past year, prices won't rise any more, thus bringing future inflation down. What does it say that the Fed must count on a poor economy and pain for consumers to reduce demand and control prices? And what does it say that the Fed intentionally creates inflation with the hope that we will soon forget it when prices stabilize -- at a much higher level? What cruel torture! And assuming that the economy rebounds, then what should we expect from inflation as demand increases again? The Fed will have to raise interest rates substantially to bring down inflation at that time. Thus, the Fed constantly perpetuates boom and bust cycles of inflation and high interest rates, alternately creating bubble, boom, and bust cycles. Again, what cruel torture!
We are only now beginning to see the effects of wholesale inflation on consumer inflation. This fall, we will begin to see significant price increases for food products at the grocery store, including 20% price increases from many major food manufacturers like Kraft, Sara Lee, Hormel, Kelloggs, General Mills, etc.
The Fed is betting on reduced demand for many products that contain commodities, in order to dampen prices. They are also betting that while prices have risen substantially over the past year, prices won't rise any more, thus bringing future inflation down. What does it say that the Fed must count on a poor economy and pain for consumers to reduce demand and control prices? And what does it say that the Fed intentionally creates inflation with the hope that we will soon forget it when prices stabilize -- at a much higher level? What cruel torture! And assuming that the economy rebounds, then what should we expect from inflation as demand increases again? The Fed will have to raise interest rates substantially to bring down inflation at that time. Thus, the Fed constantly perpetuates boom and bust cycles of inflation and high interest rates, alternately creating bubble, boom, and bust cycles. Again, what cruel torture!
