Surging Food Costs in US Belie Muted Inflation Indices

``Since the general exchange-value, or PPM, of money cannot be quantitatively defined and isolated in any historical situation, and its changes cannot be defined or measured, it is obvious that it cannot be kept stable. If we do not know what something is, we cannot very well act to keep it constant.” –Murray N. Rothbard, America’s Great Depression

A declining US dollar is inflationary. And despite muted inflation indices in the US we can take note of some conspicuous divergence.

Figure 4: CRBTrader.com: CRB Foodstuffs on a Tear!

We have been bullish agriculture primarily because of the investment cycle (growing demand in the face of limited and underinvested supply) and the inflationary bias undertaken by the world’s monetary institutions. In addition, we have governments intervening to create hideous distortions to the marketplace such as biofuel subsidies.

In figure 4, courtesy of CRB Trader.com, the CRB Foodstuff sub-Index which comprises butter, cocoa, corn, hogs, lard, soybean oil, steers, sugar, Minneapolis wheat and Kansas City wheat is now at its highest level ever. This means that the prices that underpin the stuffs that Americans eat have been rising significantly too! Yet, inflation figures shown by the government remain compressed.

This also means that inflation figures had been largely understated or manipulated for self serving purposes. To quote Antony P. Mueller, in the Myth of Price Stability, published in 2004 at the Mises.org (highlights mine),

``Price indexes necessarily average out the extremes; they are unable to signal the more subtle price movements and they leave out relevant items such as asset prices. This way, it is not only the general public that is being deceived, the central banks themselves are falling victim to their calculations like the joke of the statistician who drowns while crossing the water that he had thought was easy to wade based on the arithmetic average of its depth.

``Currently, for example, the depreciating value of the dollar is already visible in oil, real estate, precious metals, domestic services, health care, tuition, or even when calculated against other fiat monies such as the Euro. In this perspective, there is inflation taking place and it has been taking place for quite some time at a remarkable pace. However, when counting in a considerable portion of computer storage capacity and imported gadgets, the picture changes and the perspective of a deflationary trend could be diagnosed by that yardstick.

``The great cheat of the stabilizers consists in spreading the illusion that a stable or a moderately increasing price index would imply economic stability and would have no effect on the capital structure. Neither do monetary policy measures publicized under the heading of stabilization imply a constancy of purchasing power. Such measures rather mean that old distortions are covered up while new ones are being created.”

Governments in all forms can hardly be trusted.