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Minyan Mailbag



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Minyan Professors-

I know your and other Minyan's views on inflation. But what about the effects of all the price deflation in our economy on the inflation rate. Computers and all other electronics things are cheaper than last year and are also a growing part of our yearly purchases. Also a car that is up 4% in price but has a GPS, DVD player, all wheel drive and a hybrid engine (just as an example) is not really up in price at all because you're getting a much better vehicle. I buy more clothes and other things at discount places (and everyone else does too or Wal-Mart wouldn't be so large), see cheaper airline ticket prices to many places because of competition, and my Mother just had someone go into her arteries with a little tiny camera and wire in a much cheaper procedure that a few years ago would have been open heart surgery and weeks in the hospital (she stayed overnight and went home). Also, with growing imports, even though the dollar is dropping, there is some deflationary effect from making something in Bangladesh rather than Manhattan. I can also show you anecdotal evidence of inflation just like you and other Minyans. But the point is, it's not quite so clear cut that we have significant inflation. Your thoughts?

Minyan Eric Willer
Dallas, Texas

Minyan Eric,

The following categories and sub-categories describe the weighting of the components used by the government in publishing inflation figures:

Commodities (40%)

Food and Beverages 15.4%
Commodities less food 24.7%
Nondurables less food 13.4%
Apparel 4%
Nondurables less food and apparel 9.5%
Durables 11.3%

Services 60%

Rent of shelter 32.5%
Household insurance .4%
Gas and electricity 3.6%
Water, sewer, and trash collection .9%
Household operations .7%
Transportation services 6.3%
Medical care 4.5%
Other services 10.9%

I will not write in depth on this: it will be more useful for each to go through the categories and make their own decision. Let me just point out a few glaring problems.

First, assigning 4.5% to Medial care I believe is way low, and this is one of the fastest growing costs to the American household. There are other less glaring examples, but you can see the point: what we actually spend money on and what we are likely to spend it on in the future and what the government says we do are two different things.

Second, the calculation for the cost of housing does not reflect the cost of a house at all, but rent. Rent has been going down because people are being provided free money to buy houses, whose prices are going through the roof. This is a short term phenomenon that does not reflect long term reality.

The fact that the cost of manufactured goods is going down is not in dispute, but is it good? This is how profits and personal income grows. This is why the markets constantly vacillate between worrying about inflation and deflation.

So think for yourself. Is there inflation, deflation, or possibly both (stagflation)?

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