Summary
Although we have yet to experience the wage-price spiral that precipitated the extreme inflationary period of the 60’s and 70’s we are encountering the rising price in raw materials. Oil was $25 a barrel, corn $2.30 a bushel and copper $.70 per pound in 2002, yet $140 per barrel, $7 a bushel and $3.80 per pound respectfully are today’s highs. In the meantime, the price of manufactured imports (a powerful anti-inflationary force) is being driven higher by a weaker dollar and higher transportation costs. As cited in the source article; in the past year, prices for imported consumer goods (excluding autos) are up 3.6 percent.
Analysis
Whether the economic picture of today mirrors that of 1966, clearly the tipping point and possibly a point of no return for one of the most damaging periods of high inflation in US history, or whether Ben Bernanke will be able to save us from high inflation is yet to be seen. However, as many government officials and academic economic economist underestimated the danger then, the same is possibly true in light of the current 2% to 3% increase in inflation since 2003.
The Consumer Confidence Index released today showed the lowest numerical value in the history of the index for future expectations. Considering the price at the pump, the inability for Congress to set aside partisan differences long enough to develop a comprehensive energy or transportation policy, the apparent dip by high energy into core inflation rates, the certain increase in transportation costs yet to come, albeit slow but steady growth in unemployment numbers, the weak dollar and the accepted new world wide phenomenon of high inflation in China, India and Russia makes it easy to understand the public’s dim outlook for the future.
In tomorrows meeting of Fed, they are not expected to raise interest rates because it involves slowing the economy to relieve pressures on prices and wages. Unemployment typically rises and housing and more loan defaults are an issue. Then there is always those that hope inflation will spontaneously subside because the economy is already weak. (Doubt that happens) Still as economist Milton Friedman noted, all large inflations involve "too much money chasing too few goods," and this episode is no exception.
