Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19
Stock Market S&P 500 Negative Expectations Again - 13th May 19
Why Rising Living Standard in China Offers Global Hope - 13th May 19
Stock Market Anticipated Correction Starts On Cue! - 13th May 19
How Chinese Trade Issues Will Drive Stock Market Trends - 13th May 19
Amazon SCAM Deliveries for Fake Verified Purchaser Reviews "Brushing" - 13th May 19
Stock Market US China Trade War Panic - Video - 13th May 19
US Stock Market Leading Macro Economic Indicators Update - 12th May 19
SAMSUNG - BC94.L - Investing in AI Machine Intelligence Stocks - 11th May 19
US Increases Trade Tariffs Against China – Stock Markets, Gold, and Silver - 11th May 19
Who Has More To Lose In A No Deal Brexit? - 11th May 19
Gold at $1,344 Will Start Real Fireworks on the Upside - 11th May 19
Make America’s Economy Great Again - 10th May 19
Big US Stocks’ 2019 Fundamentals - 10th May 19
Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - 10th May 19
Stock Market Shake-Out Continues – Where Is The Bottom? - 10th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The CPI Lag in Disguise

Economics / Inflation Mar 02, 2015 - 11:12 AM GMT

By: Dr_Jeff_Lewis

Economics

Here’s another reader’s original and inspired perspective on the short term effects of consumer price inflation and how it differs from the inflation in speculative finance. This latter type of inflation will ultimately break the system and the currency.

Reader Dan pointed out:

“Regardless of the fluctuations in paper currency values, (which are basically measured against the value of gold), precious metals tend to retain their value in the long run as determined by their calculated exchange rates for goods and services.


This value usually lags behind the constant changes in the purchasing power of paper currencies, which are caused by inflation and deflation.  For example, if the price of gold drops by 20% in 1 month, the converse result is generally a 20% increase in the value of the dollar”. 

(Jeff: Actually, in today’s world, the day to day and/or month to month relationship between the dollar and precious metals is not strong, even though the media is quick to point out the occasional correlation.).

“However, the price of bread or the price of a doctor visit won't immediately go down by 20%.  The extended effects of such a change could take several months, and due to the relative nature of exchange within a given country, prices for goods and services generally change only as they are directly affected by price fluctuations in commodities”.

(Jeff: Or business decisions in a ‘trickle down-like’ effect.

We’ve seen the pressure to pass along commodity prices to consumers as a public issue over the year from major food producers and retailers.

They’ve been careful to change packaging sizes - or use certain items as loss leaders - retaining margins on other product lines.

Oil producers, by contrast (as I mentioned in another piece) and ironically, given their general public scrutiny, immediately slashed costs (job cuts) as oil prices began falling as early as the Fall of 2014).

“Bottom line, the rich man's ultimate wealth only changes with the lag in price changes of goods and services as a result of fluctuation of currency values.  Given enough time at a stationary currency value, one's ultimate net worth in precious metals will remain constant”. 

I think Dan is right on in terms of the frogs in the pot type of inflation.

Doug Noland summarized it best when he stated recently:

"For almost six years now, I have argued that the key issue is policy-induced market distortions and attendant financial Bubbles (as opposed to consumer price inflation).

The history of monetary inflations is that once commenced they become almost impossible to end. This era’s policy experiment with manipulating securities market inflation makes certain that policy exits will be even more unbearable. Most regrettably, it’s reached a point where a global securities bear market will have devastating consequences – on markets, on economies and geopolitics.

So central banks keep pumping and distorting markets – and market operators continue playing the game".

To paraphrase:

Central banks have effectively promised markets perpetual stability, liquidity and price continuity.

The resulting leverage, hedging and speculative flows will ensure an ugly day of reckoning with market illiquidity and dislocation.

Ultimately, a bear market in securities will create a freeze in liquidity that reaches down far enough to call for even more extraordinary policy measures.

All the “money” printing inflates the scope of this “crowded trade” of speculative finance now hopelessly destabilizing global markets and economies.

The central banks can't create that type of inflation, certainly not by flooding the system with cheap money that's not being lent to the consumer.

They can only create the type of inflation that is driven by currency weakness.

The questions are twofold: at what stage will we see massive rise in CPI - even in real terms versus whether instead we will experience a currency collapse caused by widespread derivatives.

Consumer inflation arrives in the end sure enough, but by then it's too late for the currency.

For more articles like this, and/or for a breath of fresh silver market reality amidst the stench of denial and technically meaningless short term price obsessed madness, check out http://www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2014 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dr. Jeff Lewis Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules