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Government Inflation data at Odds with RealityGary Dorsch In an age where governments of every political stripe distort economic data to promote their own self-interests, it's hardly surprising that they present inflation statistics that are wildly at odds with the reality faced by consumers and businesses, and regarded with utter disbelief. In the latest US government report on inflation for instance, there was a glaring "seasonal adjustment," for energy prices that cast great doubt as to the accuracy of the findings. US Labor Dept apparatchniks said consumer prices rose a smaller than expected 0.2% in April, tamed by energy prices, which were unchanged last month. Utilizing an obscure "seasonal adjustment," Labor figured that gasoline prices actually fell 2% in April, which doesn't reflect the reality of what consumers were paying at the pump. Furthermore, the IMF's global food price index rose 43% over the last 12-months, but the US consumer price index for food is only 5.1% higher. Wall Street cheered the tame inflation rate, reckoning it gives the Federal Reserve more time to peg the fed funds rate at 2%, to jig-up the stock market with massive money injections. But the folks who aren't fooled by the government's propaganda on inflation are the American people, whose dollars buy less with each passing month. The inflation tax is the great thief of the middle class. For the 12-months through April, prices for US imports were 15.4% higher. Yet Wall Street economists massaged the data, and explained that wholesalers and retailers are absorbing the higher costs out of reluctance to increasing prices and driving away customers. Should we trust the inflation statistics conjured-up by government apparatchniks, or rather, place greater faith in the depreciating dollars and cents that flow through the commodity markets each business-day?  According to the chart above, unleaded gasoline futures traded on the Nymex ended +12.2% higher in April, at $2.93 /gallon. The US Energy Information Administration (EIA), said average retail gas prices actually shot up 9.5% in April from March. Less than two weeks later, gasoline futures advanced another 10% to a record $3.22 /gallon, and retail prices are closing in on $4 /gallon nationwide. On May 14th, upon hearing Labor's report of a scant 0.2% inflation rate during April, former Fed chief Paul Volcker had doubts about the way the government measures inflation. "It doesn't feel quite right. I think the bias clearly is more towards higher inflation, offset by the weakness of the domestic economy," he said. "Seasonal adjustments" are just one of the useful tools that Labor apparatchniks have developed to fudge inflation statistics. The Bernanke Fed has a simpler model, it simply strips out food and energy costs, in its inflation calculus.  Labor apparatchniks said retail food prices in April were +5.1% higher from a year ago. Yet, the Dow Jones Agricultural Commodity Index, which measures a basket of corn, coffee, cotton, soybeans, soybean oil, sugar, and wheat, was up 40% in April from a year earlier. Major central banks have greatly increased the levels of cash available to banks and brokers to stave off a credit crisis, and much of the excess money has found its way into agricultural and energy futures. Also driving up food prices is bio-fuel production, which jumped 43% in the year through March. The American Farm Bureau Federation calculates that bio-fuel use accounts for up to 30% of the food price surge. About a third of the US corn crop, or 4-million bushels, is expected to go to making ethanol this year. The White House's chief economist, Ed Lazear said rising energy costs account for as much as 20% of rising food prices, while the sliding dollar accounts for about 13% of this increase. Other factors supporting higher food prices are bad weather in traditionally big production areas, and tastes in Asia that are shifting toward greater consumption of proteins from meat and poultry which requires more grains to help produce.  Not included in US inflation statistics is the Baltic Exchange's Sea Freight Index, which monitors the costs of shipping dry goods across 40 major trade routes for minerals, grains, cement and sugar. Earlier today, the key gauge of global economic activity jumped 4% to a record 11,067. Asian demand for grains and natural resources has not been dented by the global banking crisis or the economic recession in the United States. Freight shipping costs on key export routes are 75% higher than a year ago, and 1100% higher than seven years ago. To read the rest of the article, click on the link below: http://www.sirchartsalot.com/article.php?id=86 May 15, 2008 321gold Ltd |
