Has the Titanic of GM Just Hit The Iceberg of Inflation?

Implications: Will the Fed ultimately have to increase the money supply in order to pay in dollars for the commodities, once produced in the US sufficiently for domestic demand, that are now more and more being bought from other nations? What will happen when the US is no longer the largest purchaser of these commodities and the producers terminate the dollar pricing linkage? How will the price of a commodity be reflected in the price of a car when the producer of the car must first but a foreign currency with his dollars and then, and only then, buy the commodity with that currency?

Analysis: GM is raising 2008 product prices by an average of  1 1/2% to reduce the impact of steel and commodity price rises, they say, officially, on its bottom line. Gee, really? Has anyone noticed that this little 1 1/2% increase adds up to  be a 3 billion dollar increase in prices! Did GM add to this announcement that the 3 billion extra dollars would automatically make it profitable during 2008? No. Why? Because (insert background music from horror film) no one knows how much steel and commodity inflation is already pushing up GM costs, and no one, outside of GM, knows how much Chinese currency value rise against the US dollar will add costs to GM's operations where there were supposed to be savings.

Luckily the euphemists of Wall Street and the American managerial community do not seem to worry about these drivers of inflation,' because the price of commodities is a small part of the PPI, the producer price index, and the inflation calculations upon which Wall Street and Washington rely are more heavily weighted in the CPI, the consumer price index than in the PPI. Also, food and energy costs, are not counted when calculating 'core' inflation. 

Of course there is bright side to all of this for the globally minded: As the American dollar declines it will be cheaper to employ skilled labor here than in any other heavily industrialized western country. Of course because of the high 'real' prices of steel and commodities which must be imported Americans will less and less be able to buy American manufactured goods such as cars. So those Americans who are still employed will generally find the purchasing power of their wages lessening until they are simply not enough to maintain our current widely enjoyed 'middle class' life styles. As our government embarks on a program to waste food crops and feed crops to make ethanol American food prices will soar; of course those prices are not counted as core inflationary drivers, so it doesn't matter.

The US is now dependent for our lifestyle on imported oil; we import over 50% of our daily needs. When and, I think, as the US no longer produces domestic liquid petroleum the price of refined products will simply soar until it produces enough revenue to allow our importers to buy the oil they need for the US markets's then demand. American politicians do not see the need to point out to us that we must have economically practical large scale power sources to replace oil (and coal) in the generation of electricity. Wind and solar power generation are both limited, one, wind, by scale, and two, solar, by lack of the necessary raw materials. The answer in uranium or thorium fueled nuclear reactors, but, even though they take years to build, politicians don't seem to be in much of a hurry to secure anyone's future but their own. Remember energy is a factor in non-core inflation; it is not counted in core inflation calculations.

Real inflation is now out of the closet; we'll now see how much GM and everyone has to raise prices to compensate for the loss of American domestic self sufficiency in natural resources due to the unintended consequences of extreme environmentalism.

GM has been worried for years about the cost of lithium batteries if and when they are ever ready for prime time. GM has not been worried about the cost of copper, steel, iron, aluminum, plastics, and oil, but all of these are catching up and if GM needs to raise prices by 3 billion dollars in 2008 just to stand still wait until they have to end the charade of Chinese cost savings. Stand clear of the PPI for your own safety it is going to take off suddenly.