Sky-rocketing inflation on the rampage. It hits us all

America’s economist-in-chief, a.k.a. president of his country, keeps telling all who still listen that inflation hasn’t much to do with prices people have to pay to buy whatever they need or want to buy.

Of course, it would be difficult to expect him to know squat about basic economics. He got a lawyer’s degree, and hasn’t done much in the profession, either, as he went into politicking two years hence.

But it would not be much to ask of a lawyer keep her/his mouth shut firm when s/he knows s/he doesn’t know enough to prevail in an argument. In court or anywhere else.

Joe Biden obviously knows better.

A few basics: inflation has been described as a decrease in the purchasing power of money. A general increase in the prices of goods and services in an economy is the result.

So, what is inflation linked to? To the Consumer Price Index (CPI). What’s that? The accepted definition from Economy 101 textbooks describes the CPI as a standard measure of changes in prices consumers pay for a so-called market basket of basic goods and services. It’s expressed in averages tabulated over a certain time frame.

To be sure, the basket does not include any extravagant items, such as top-carat diamonds or round-the-world trips on yachts paid for in cash.

Fine. Are inflation and the Consumer Price Index linked?

The answer is straightforward: absolutely.

Beyond theory

With all that in mind, herewith a few unpleasant figures: core prices (CPI, that is) went up last month (November 2021) by 0.53 per cent. The annual increase went from 4.56 to 4.93 per cent.

Last time North American economies had seen such an increase was 30 years ago.

People who prefer knowing more details must have been shocked. One of the most dramatic increases in 46 years happened in what is called durable goods. The month-to-month index went up by 1.6 percentage points. The year-to-year comparison equals 14.9 per cent. If you paid a hundred bucks for an item now, be prepared to shell out $115 now. Not for a better and improved version that would last you decades. For the same thing, only a year older.

Of course, it’s not all about economic issues, and it’s not all about government policies (carbon tax, anybody?).

Natural disasters can have disastrous impact on such prices like food or oil. Except, no matter how we view such tragedies, food and energy are still basic and unconditional costs. Yes, these costs can change dramatically because of such natural occurrences, but still: while you can delay a number of purchases, you still need to eat, and you still don’t want to freeze under your own roof.

In any case, even without natural disasters, the question of government idiocy crops up again: carbon tax, anybody?

So, here’s the deal: inflation is up 0.78 per cent for November 2021. That adds up when you have, say, a family of four, a unit that you want to feed and keep dressed, and educated and healthy.

And the CPI, the figure that is linked to inflation, has gone up a whopping 6.81 per cent. It took a mere calendar year (12 months, that is) to see price increases not seen in North America since 1982 (and that was the year in the midst of the period of crazy interest rates).

How many Canadians have noticed that their dollar isn’t taking them as far as it used to?

And still, nobody bats an eye when the leader of the country whose economy has so much impact on Canada’s own economy does not seem to understand even the basic principle of what’s going on.

You ain’t seen nuthin’ yet

There exists one more index that should be of interest to everybody. It’s the Producer Price Index (PPI).

The PPI calculates what it costs those who sell you your goods and service to sell it all to you.

The CPI and PPI are almost like identical twins. With one exemption: a country’s PPI does not (and cannot) include imports. It’s all about home-made inflation.

But, and that is one of its most interesting features, the PPI also includes calculations on how much it cost someone to provide customers with their goods or services.

Even without Canada’s goods-and-services tax (the dreadful idiocy known as GST), this look at the PPI documents what many economists describe as “final demand supply chain inflation.”

The most recent long-term predictions, made just before the last American presidential election, spoke about final demand PPI increases at 0.5 per cent month-to-month rate, concluding at an annual increase at 9.2 per cent. Economists were predicting that core prices would see a 7.4 per cent annual increase.

The poor souls were hedging their predictions, making allowances for potential new waves of hurricanes, volcano eruptions, tsunamis, and other such unplannable events.

They did not take human idiocy into account: current calculations see double-digit inflation, whether the mighty who are causing it are willing to admit it or not.

In any case, the powers-that-be are causing an economic catastrophe, and it matters not whether they do so on purpose or because of their own sheer ignorance.

Next thing we know the inflation will soar to make a loaf of bread cost a few hundred thousand dollars, just like it used to look in post-World War I Germany’s Weimar Republic.

And look where it got them (and the rest of the world with them, too).

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