There’s always something to howl about

Where’s that inflation?

I’ve been saying for a year now that inflation is down the road. I had predicted that we’d start seeing the first signs of it by the end of 2009. And I had said, in anticipation of inflation, the Fed would start raising interest rates, in order to draw out all the money it and the rest of what the federal government has pumped into the economy since the fall of 2008.

But… there’s no apparent inflation yet. The CPI – however accurate that is – has increased at between .2 and .4 percent in July, August, and September.

As a result, the Fed has contented itself with keeping interest rates low. But this can’t last forever can it?

Where’s the inflation? Someone smarter than I please chime in.


20 Comments so far

  1. Patrick November 29th, 2009 11:51 am

    A friend emailed me this Video, it is quite scary, maybe truthful. Like all media…take it for what it is worth.

    Takes inflation to a new level, kind of like Jason meets Freddy.

    Actually I wish I had not watched it, kind of a downer.

    Nice Friend.

  2. Robert Worthington November 29th, 2009 12:19 pm

    Damon, according to Glenn Beck on Fox News inflation will hit once the banks release the stock pile of money they are sitting on.

  3. Eric Hempler November 29th, 2009 12:23 pm

    I’m anticipating it as well. My dad told me about the 80s recession and some of the similarities

  4. Erion Shehaj November 29th, 2009 1:13 pm

    Glenn Beck is the outmost authority on inflation 😛

  5. matt mathews November 29th, 2009 1:39 pm

    Having been through the Hyper Inflation of the late 70’s followed by a severe recession in the 80’s-Today’s recession is quite similar in many ways. With that said, however, one needs to look at the under lying rate of Inflation-not what the Fed. Reserve is doing with interest rates. Last year the actual Inflation rate in the US was close to 5.5%-6.2%. M1, M2, money supply, Industrial Production, Producer Price Index figures are far more accurate than CPI< and GDP. Once the Fed is forced to raise the Fed Funds rate. The underlying rate of Inflation will jump into Hyper space. I see the Prime rate at over 20% before the end of Obama’s first term. I also see a double bubble in the Real Estate Market coming next year into 2011. That event combined with high unemployment will push prices back to 2001 levels.

  6. Damon Chetson November 29th, 2009 2:23 pm

    Who is Glenn Beck?

  7. Sean November 29th, 2009 2:28 pm

    Bullard (from the St. Louis Fed) recently stated that he expected the Fed to begin raising it’s Target Rate in 2012, which would follow the historical trend of credit tightening 2.5 to 3 years following the end of a recession. Perhaps the most recent recession really is “different” but only time will tell.

  8. Jeff Brown November 29th, 2009 5:13 pm

    Damon — I asked the same question many moons ago of a very bright Ph.D candidate. He used the analogy of a large glass tumbler as our economy, and water as money being printed by the Fed. Inflation is when 20 ounces of water is put into a 16 ounce tumbler.

    We’ve haven’t reached the ‘spill point’ yet — nor do I suspect we will for awhile.

  9. Ashlee November 29th, 2009 5:40 pm

    Hopefully the inflation stays away for a long while!

  10. Tom Vanderwell November 29th, 2009 6:38 pm

    Damon – what Jeff said. 🙂

    Seriously, I’ve been telling people to plan that we’ve got 12 to 18 months until we see the economy turn around and have inflation become an issue.

    I’ve been saying that for 6 months now. We aren’t there yet.

    Based on what the Fed’s most recent minutes said, if they are right (big if), I wrote the piece at where essentially it says that if they are right, then we’re looking at a lot longer until inflation becomes an issue.

    It’s a storm cloud on the other side of the horizon right now……


  11. Jessica Wynn Horton November 29th, 2009 7:51 pm

    My family asked my 9 year old what he wanted for Christmas and he told them that he didn’t want any toys. He wanted gold and silver bars…

    “It’s a storm cloud on the other side of the horizon right now……”

    I second that.

  12. Thomas Johnson November 29th, 2009 8:55 pm

    @Jessica: Smart kid.

  13. Sam Dodd November 29th, 2009 9:09 pm

    Inflation is coming just wait but don’t think its such a bad thing. It will increase real estate prices just by the mear fact that there will be more money around for people to buy homes with. Just a thought.

  14. Damon Chetson November 30th, 2009 5:10 am

    Inflation is coming just wait but don’t think its such a bad thing. It will increase real estate prices just by the mear fact that there will be more money around for people to buy homes with. Just a thought.

    Inflation will increase the price of everything by the mere fact that there is more money around. That’s the definition of inflation.

  15. James Boyer November 30th, 2009 2:08 pm

    How can we have inflation when the majority of the American consumers who are working have switched from spending more then they earn each month, to saving 5% to 15% (depending on the news source) of their income. People are still looking to save wherever they can.

    It is quite possible that the events of 2008/2009 may cause a dramatic change in how people treat money. It is also possible that interest rates will be going up without inflation, due to the drop in demand for mortgage backed securities.

    I am not an economist, but I don’t see any real inflation coming soon, but higher interest rates, yup see them coming.

  16. Brian Brady November 30th, 2009 9:44 pm

    “Inflation will increase the price of everything by the mere fact that there is more money around. That’s the definition of inflation.”

    As Damon points out, inflation is not an economic event, it’s a monetary one. A robust economy wouldn’t necessarily rise all prices but doubling or tripling M1 will, regardless of economic performance. Consequently, a tepid economy doesn’t always result in dropped prices.

    By the way, we just went through an example of inflation this decade in the real estate asset class. The price increase was a monetary event as is the steep decline due to contraction of available money.

    This next inflationary cycle will start with the commodities: fuel, food, and water (yes…water). Prices will skyrocket with the first sign of reduced distribution of these commodities.

    The first stage will be where prices rise faster than demand. The second stage will be increased consumption in order to avoid higher prices (call it consumers’ hedge). Finally, RAMPANT consumption which will exceed price inflation; that’s where the rationing comes in. (sound like the real estate bubble?)

    God help us if we have a world wide food shortage or drought. Sure, real estate will go up but you can’t eat bricks and sticks.

  17. Jessica Horton December 1st, 2009 8:27 am


    My husband agrees with you. That’s why we planted a small garden this year and plan to double it next year. We go hiking and camping and have started buying extra MRE’s too. We’ve also considered clearing off a few acres and having some chickens and livestock.

    Yes, I know people will laugh at that, but we will be eating if worse comes to worse. Not to mention we saved a lot of money at the grocery store and it’s just healthier…

  18. Dave Shafer December 3rd, 2009 2:14 pm

    In order for there to be general inflation, the consumer [meaning us] has to either have more income to spend or more credit to use. Since we are seeing the opposite when it comes to credit availability and income increases are currently not happening no inflation. Now there can be inflation in commodities that force changing spending habits [more money for oil and food, less for entertainment for example] that might effect quality of life issues but unless there is more money to spend by consumers there can be no overall price inflation.

  19. Louis Cammarosano December 7th, 2009 8:57 pm

    the reason we don’t have inflation yet
    -the bailout did not pump money into the system but rather threw a lifeline to insolvent banks who did not take the money and lend it but rather bolstered their balance sheets
    -as people lost their jobs and homes, they were in no mood or condition to buy things so demand for goods was low
    -with low interest rates and few other safe havens for money (gold has since become a favorite with India,China and private and institutional investors)
    foreigners continued to fund the US deficit spending

    Many speculate including judge posner that this low inflation and perhaps deflation is a precursor to hyperinflation.

    This video thinks inflation is inevitable

  20. Brian Brady December 7th, 2009 9:14 pm

    Consider this; we don’t make ANYTHING. All the stuff on the shelves at Wal Mart comes from China and India. When China cuts us off, and the dollar collapses, you’ll have inflation because goods will be rationed.

    The Chinese will stop extending credit to us and sell their tschochkes elsewhere. Americans will want this stuff and it will be VERY expensive because nobody will want to hold the dollar.

    Same with oil. If the middle east does away with “petrodollars” and insists on petroeuros or petroyuans, we’re in for a big problem.

    Our dollar is no longer a reserve currency. Art Laffer once said our great export was our monetary policy (he insinuated that our economy was so strong that the dollar would always be in demand). That’s not working out so well, is it?

    Inflation has nothing to do with consumption Dave and has everything to do with the value of the currency. Print 2-3 times the dollars and the demand for them drops. When demand for dollars drops, import prices skyrocket.

    Tschotchkes and oil. Rationing to soon follow