Inflation Has Arrived Despite What the Fed Says

World Bank Report: Global Food Prices Jumped 29% Over the Last 12 Months

“The way to crush the bourgeoisie (middle class) is to grind them between the millstones of taxation and inflation” (Vladimir Lenin Bernake). The goal of the New World Order psychos is the destruction of the U.S. economy to weaken her for absorption into the NWO. Wild claim? Verify it for yourselves with these excellent resources: Freedom Force International and Web of Debt. Inflation is inevitable when the economic model itself is a giant ponzi-scam. Time to wake up folks ... viable alternatives shared at Web of Debt. Social chaos will not be limited to the middle east! - Mikael

February 22, 2011

Stockhouse - Fed Chairman Bernanke says inflation is still benign and not a concern. He’s wrong! And he’s behind the curve, dangerously so!

Inflationary pressures have been rising and recognized in many major global economies for quite some time, which has had their central banks raising interest rates and tightening monetary policies in efforts to bring rising prices under control. So far, without effect thanks to the intensity of the inflationary pressures.

China began raising interest rates and tightening policies almost a year ago, and has become more aggressive recently as the efforts so far have had no effect whatever. Similar inflationary concerns and efforts to cool off rising prices in India have spread through the rest of Asia, into Russia, over to Brazil and the rest of South America, and into Africa.

Last week in Europe, the United Kingdom reported that its annualized rate of inflation jumped to 4% in January, up from an already worrisome 3.7% in December. The 4% level is double the Bank of England’s stated ‘comfort zone’ of 2%, which by the way is the same as the Fed’s stated comfort zone.

The Fed looks out the rear view mirror and says that the ‘core rate’ of inflation, that is with the cost of food and energy removed, is up only 1.6% over the last 12 months, well within the Fed’s comfort zone.

The Fed needs to look out the windshield at what’s coming down the road, not through the rear window.

Last week in the U.S. it was reported that the Producer Price Index (PPI), measuring inflation at the producer level, jumped an unexpected 0.8% in January from December, and the ‘core rate’ jumped 0.5%, more than double the consensus forecast of economists, and the fastest monthly pace of increase in two years.

And it looks like it’s moving on from producers to consumers. Last week it was reported that the Consumer Price Index (CPI) was up 0.4% in January. The Fed will take comfort that the core rate was only up 0.2%, an annualized rate of 2.4%. It was, however, also double the consensus forecast of a rise of only 0.1%.

Meanwhile, the World Bank president warned that global food prices have hit “dangerous levels” that could create political instability in many parts of the world. The bank reported that global food prices have jumped 29% over the last 12 months.

Commodity futures, particularly in the areas of corn, soybeans, cotton, are pointing to still higher prices ahead. And agriculture experts say there is not enough global growing capacity to bring prices down any time soon.

Last week, CitiGroup CEO Vikram Pandit warned that

“Many emerging markets are operating at or near capacity and are therefore at risk of overheating – and must deal with the possible consequences of inflation.”

The release of the minutes of the Fed’s last FOMC meeting revealed that some Fed governors suggested last month that the Fed scale back the remainder of its QE2 program on concerns that the continuing easy money policy could create an inflation problem. Countries around the world have complained since the Fed’s QE2 announcement that it would worsen already worrisome global inflationary pressures.

But the Fed Chairman is fixated on trying to fix the high unemployment problem in the U.S. by pumping up an already recovering economy, and in the process has his head in the sand regarding inflation.

It looks like once again the Fed will be dangerously behind the curve on a bubble, as it was in the stock market and housing bubbles. This time it is the inflation bubble, particularly in commodities.

The historic hedge against inflation – gold!

Global Inflation Fears Reach New Heights

January 25, 2011

Globe and Mail - Rapid inflation and robust demand in China and other emerging markets are rippling through to the still recuperating developed world, driving up prices from the gas pump to McDonald’s.

As inflation warnings grow more strident, along with the cost of food, energy and other key commodities in regions such as Asia, monetary authorities around the world are renewing their vows to keep an old arch-enemy in check, even if that means higher interest rates when their troubled economies can least afford them.

Signs of trouble are cropping up in all the high-growth areas. Brazil’s inflation forecast has been raised weekly since the beginning of December. So far this year, consumer prices in Vietnam are running more than 12 per cent higher than a year ago. In India and Russia, prices are 8 per cent higher. And food costs globally are climbing even faster than in 2007 and 2008, when sharp increases triggered riots in Asia and elsewhere.

Surging inflation in emerging markets, if unchecked, threatens to undermine the global recovery because it would curb growth in those regions, which have driven the global rebound. Countries that export key natural resources, such as Canada and Australia, could be hit hard by shrinking demand if the Chinese juggernaut slows.

Inflationary pressure could also force a hike in interest rates in industrial regions, such as Europe, where the economies are still struggling to climb back from the recession.

Food prices hit a record level last month, according to United Nations statistics, and are forecast to grow by more than 30 per cent this year. In a worst-case situation of critical shortages sketched by Citigroup Inc. analysts, prices could skyrocket by as much as 75 per cent.

“Where you get social disruption is when something happens very quickly and that is what happened with the price spike in 2007-08 and that is what is happening [again],” the British government’s chief scientist, John Beddington, told reporters Monday after releasing a report on food security challenges.

It was enough to prompt French President Nicolas Sarkozy to call on fellow G20 leaders to impose new rules to rein in volatile commodity prices.

“How can you explain that we regulate money markets and not commodities?” Mr. Sarkozy said.

The epicentre of the inflation earthquake – and the biggest threat to recovery in the industrialized world – may well sit in China, specifically in its export-focused region of Guangdong, where rising labour and material costs and an appreciating yuan are translating into higher prices abroad for Chinese goods.

The minimum wage is set to jump 19 per cent in Guangdong in March, and pay levels have climbed in other production centres for low-level, mostly migrant workers who are facing soaring costs of living.

As a result, the U.S. import price index for China rose 0.9 per cent in the final quarter of 2010, after remaining mostly stable for the previous 18 months.

However, as McDonald’s Corp. said it would raise some prices because of rising costs, analysts said this does not mean major price hikes are coming to the local Wal-Mart any time soon or that inflation is about to pose a serious threat in the United States or Canada. Statistics Canada is expected today to report a jump in overall annual inflation, though the month-to-month increase is expected to be tame.

“From my lens, any inflation we’re going to see could be a scare,” said David Rosenberg, chief economist with Toronto-based investment firm Gluskin Sheff + Associates. “I just don’t think it’s going to be sustained, any more than it was in 2008.”

At the time, oil soared to $140 (U.S.) and corn prices hit $8 a bushel.

“You have inflation in food and fuels. There’s no question about that,” Mr. Rosenberg said. “Ultimately, what matters is the overall strength of your economy. Will that increase in food and fuels filter through into broader and sustained inflation? It’s going to depend on the size of each country’s output gap and the extent to which their economies are in an upswing.”

In any case, importers are likely to absorb as much of any Chinese hikes as possible, because of the weak consumer market and intense competition. And the price increases may turn out to be relatively minor.

Labour costs make up only a small portion of production costs in China, said Na Liu, founder of CNC Asset Management and an adviser on China strategy to Scotia Capital. And Chinese companies have been making productivity gains that help offset the higher labour costs. And with overcapacity and high unemployment in the industrial countries.

“We’ll be seeing a lot of margin squeeze. Wal-Mart cannot raise prices by all that’s being passed through to them.”

Among developed countries, the most vulnerable to a surge in inflation is Japan, Dylan Grice, global strategist with Société Générale SA in London, said in a report to clients on Monday.

“Historically, bankrupt governments have used inflation to alleviate their indebtedness. I doubt things will ultimately be different this time,” Mr. Grice said. “I think Japan is the country closest to the edge.”

North American and European governments still have time to tackle their debt problems and avoid an inflationary outcome, he said.

“I’m not so worried about ‘traditional’ CPI inflation any time soon,” he said. But for Japan, “I think it’s already too late.”