In a Nutshell: Inflation Is Getting Real

Inflation is making headlines all over the country, but the mainstream media is not being honest about the true severity of the crisis. We are being told that the official rate of inflation is still in single digits, but what we aren’t being told is that the way inflation is calculated has changed dramatically over the years.

In fact, according to Forbes, “the government has changed the way it calculates inflation more than 20 times” over the past 30 years. The rate of inflation directly affects so many other things in our system, and government officials would like to keep that number as low as possible. So, they tinkered and tinkered with the formula until they got it just where they wanted it.

But even with the highly modified formula that they are now using, the rate of inflation last month still rose at the fastest pace in almost 13 years. Adding to our fear of runaway inflation, the PCE (personal consumption expenditures indicator reported June 25) showed an increase of 3.4 for May–the fastest increase in over 30 years. This is a key indicator that influences monetary policy by the Fed.

The consumer price index, which represents a “basket” of food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5 percent from a year earlier. Economists surveyed by Dow Jones were expecting a gain of 4.7 percent. This reading represented the biggest CPI gain since the 5.3 percent increase in August 2008, just before the financial crisis sent the U.S. spiraling into the worst recession since the Great Depression.

We all remember what happened in the months following August 2008. Hopefully, we will not have a repeat of that.

The uncomfortable truth is that consumer prices are rising much more than 5 percent rate in the United States right now.

According to John Williams of shadowstats.com, had the rate of inflation been calculated the way that it was back in 1990, it would be above 8 percent right now. And if the rate of inflation was still calculated the way that it was back in 1980, it would currently be sitting at about 13 percent! But our government’s 5 percent inflation sure sounds a whole lot better than 13 percent, doesn’t it?

One thing that many of my Wall Street colleagues are keeping a very close eye on is food inflation. You may have noticed a significant jump in prices at the grocery store. More and more grocery shoppers are experiencing sticker shock every day. The price of food—especially meat, fruit and vegetables—is going up at substantial rates. If prices were increasing at just a 5 percent annual rate, that wouldn’t be a big deal. Sadly, the reality is much worse than that, and that is especially true for meat prices. According to one economist I know very well, the true rate of inflation for meat prices is “probably closer” to 20 or 30 percent.

We will continue to get a lot of happy talk from the Biden administration and from the Federal Reserve, but this is becoming a real national crisis. The biggest problem is way too many dollars chasing way too few goods and services. Instead of taking emergency measures to get inflation under control, our leaders seem intent on making things even worse.

The Biden administration wanted to spend $2 trillion on infrastructure plus a variety of pork projects, but a group of U.S. senators is currently working on a “compromise” that would only provide about $1 trillion in new infrastructure titled spending. This would be on top of the trillions  of dollars we have already borrowed and spent during the pandemic crisis. It is complete and utter insanity.

Unfortunately, politicians in Washington don’t seem to care. They seem determined to continue to borrow and spend giant mountains of money that we do not have, and the Federal Reserve is going to continue to shovel enormous gobs of cash into the financial system.

So, more understated (by our government) inflation is on the way, and the standard of living for most Americans is going to continue to go down.