Inflation Looming

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The American people may be smarter than the financial wizards at the Federal Reserve. Chairman Ben Bernanke Dec. 9 said he will try to jumpstart the economy by printing another $600 billion. But most people don’t think he can control inflation or rising interest rates.

A new Rasmussen Reports national telephone survey finds only 38 percent of respondents are even somewhat confident the Fed will be able to keep inflation under control and interest rates down. Some 72 percent are either “not confident” or “not at all confident.”  Eighty percent are at least somewhat concerned about inflation.

Appearing on CBS’s “60 Minutes” program Dec. 5, Fed Chairman Bernanke called inflation fears “way overstated.” He said he could act quickly enough to keep prices in check. The Fed Nov. 3 had announced that its purchase of $600 billion in government bonds was to prompt people to spend more and give the economy just a touch of inflation—maybe 2 percent.

As for printing money to accomplish Fed goals, Jim Grant, editor of Grant’s Interest Rate Observer writes:

Bernanke would have us believe the Fed can calibrate inflation….One day the Fed will wish inflation were only 2 percent. Don’t you sometimes get the feeling that the economists are pulling our leg? As bartenders would call it “watering the whiskey”….More dollar printing simply dilutes the buying power of all dollars. And so we see today the beginnings of a full fledged inflation.

Commodity prices tend to be “the first signals of excessive liquidity and possible future inflation,” The Economist commented last month. In past inflationary episodes, commodity prices always rose first as they are dominated by existing stocks which have inelastic supplies. A second reason is increasing demand for many commodities by the fast-growing, emerging countries in Asia and Latin America. “I expect what is driving most of the current run up in commodity prices,” wrote Michael Bordo, Rutgers University professor of economics, “is the US’s expansionary monetary policy and fears of global inflation in the future.”

As most investors are well aware, the price of gold has nearly quadrupled, and other precious metals and securities based on precious metals have risen, partly because of the loss of status of the U.S. dollar and the fear of inflation.

The Wall Street Journal recently reported: “Across corporate America, more companies are wrestling with when and how much to raise prices as raw materials costs climb.” The increases pose problems as consumers resist increases. General Mills said it will increase prices on a quarter of its breakfast cereals “as a result of rising grain and other commodity prices.”

General Mills is certainly not alone. United Technologies, which builds helicopters, jet engines, elevators, and air conditioners, expects to increase its prices. Domino’s Pizza said cheese prices are up 29 percent and headed higher, according to the pizza chain’s finance chief.

Wheat was 34 percent higher in September than the year before. Corn also was up 34 percent. Milk was 32 percent higher. Copper was up 30 percent in the September to September measurement. The large chain stores see their costs climbing and are “growing nervous” about the prospect of passing those higher costs along to price-conscious customers, The Wall Street Journal story said. One chief executive was quoted as wondering “how customers will react to price increases.”

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  • Rick Thomas

    Honestly, not to be rude, but i'm suprised that 1 out of 100 people surveyed with a random phone call could understand the concepts of QE2 and even inflation/deflation for that matter. Most people I talk to are clueless and don't concentrate much on monetary policy.

    With that being said, I agree that (core) inflation as published is a joke. Prices are going up and the quantity of product in the packages you are buying is going down. QE2 has put a floor beneath any commodity prices which will eventually factor their way down to consumer goods. Scarily, the PPI is increasing, but for now they aren't passing the full effect down onto consumers. Its gonna hurt when they do!

    I've created a social website ( that helps to track consumer prices and bring accurate data out of the woodwork. Its time we hold people accountable to the truth. Check it out if you have time or just like data!