The Real Rate of Inflation is 13%

The Mogambo Guru
The Daily Reckoning
August 27, 2008

It was when “official government-approved” inflation figures were released that I really lost it last week, as that particular rate of inflation is now a staggering 5.6%. This is – as you can probably tell by the look of panic and terror on my face – Terrible, Terrible News (TTN).

And when you look at what John Williams at shadowstats.com calculates as inflation, according to the time-honored method of actually looking at real prices instead of the “qualified estimates” that are used today, you will see that annual inflation in consumer prices is actually running at over 13%! Some of the worst in American history! We’re freaking doomed!

Anthony Cherniawski of The Practical Investor is not interested in my dour assessment of the situation, and took a look at the Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (CPI-U), which increased a whopping 0.5% (non-seasonally adjusted) in July, which is plenty bad enough for one month, but one’s tongue tries to hide by jumping down one’s throat when one learns that it was not a fluke, and that prices are 5.6% higher than in July 2007! 5.6% annual inflation is the best they can wring from admittedly-doctored statistics? Yikes! I’m screaming my guts out here!

Mr. Cherniawski coolly says that I don’t know the literal half of it, as “The alarming part of this report is the acceleration of inflation in the past 3 months. While the unadjusted rate for the past 12 months was 6.2%, the 3-month annualized rate of increase was 11.9%.” Yikes! We’re freaking doomed!

The report itself noted, without any hint of alarm, that “On a seasonally adjusted basis, the CPI-U advanced 0.8 percent in July, following a 1.1 percent increase in June.” Yow!

Some of the terrifying specifics were that the energy index rose 4%, which accounted for “about half of the overall increase in the all items index.”

The worse news for people who eat food is that “the food index rose 0.9 percent in July after rising 0.8 percent in June. Indexes for five of the six major grocery store food groups rose at least 1.0 percent.” In one freaking month! This is outrageous inflation!

This inflation in food may be why Heraldtribune.com interviewed Vicki Escarra, president and CEO of an outfit called America’s Second Harvest, which is “the nation’s largest food bank network”, and which is a name that they are soon changing to “Feeding America”, which seems oddly apropos, considering that in January, they surveyed their 200 food banks and found that “demand was up 20 percent over last year.” Wow! What an increase!

“We’re seeing more and more people visiting food banks for the first time because they’ve lost their jobs or they’re not getting raises”, she says. Yikes! People are reduced to begging for food because they are not getting raises!

Equally alarming is the news from John Williams at shadowstats.com, who says that real inflation in prices, as measured in a subset of the BLS Consumer Price Indexes, the CPI-W, “jumped to 6.2%”.

What makes the CPI-W inflation subset so interesting is that, as Mr. Williams explains, “The CPI-W is used for making the annual cost-of-living adjustments to Social Security payments” which would indicate that the federal budget line-item for Social Security, already one of the largest categories in the whole bloated federal budget that is already over $3 trillion a year, will be increasing by a theoretical 6.2%, just by virtue of mandated higher payments!

Then, to make it all worse, the Labor Department reported the latest survey of producer prices for July, the Producer Price Index, which went up by a stunning 1.2% for the month, where the only saving grace is that it is less than the 1.8% increase in June!

As Mark Gongloff so pithily explained in his Ahead Of The Tape column of the Wall Street Journal, “While consumers suffer inflation a the bottom of the pricing pipeline, producers feel it at the top”, and that producers will be very keen about passing higher costs along to the consumer as quickly as possible, because “to the extent inflation gets stuck with them, their profits suffer.”

And since everybody knows the ugliness of profits suffering, I will not go into it, as it usually means that I am going to be fired soon, and I don’t want to think about that right now, other than to say that “profits that suffer” is ugly in the best of times, and it will be Much, Much Uglier (MMU) this time, thanks to seemingly-impossible leveraged investment use of every freaking dime, real or imagined, here or in the future.

Okay, I will say one other thing; if you are not buying gold, silver and oil in a fit of terrified self-preservation, to the exclusion of everything else including back-to-school clothes for your stupid kids that make them look like mental defectives and cost a fortune, then you are almost certainly making the biggest mistake of your life.

Well, maybe the second biggest mistake after deciding to have the damned kids. Or maybe the third biggest mistake after deciding to get married in the first damned place and then having the damned kids in the second place, but you get the point.

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