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Where's the Inflationary Beef?


If banks won't loan and consumers won't spend, there won't be any.


Inquiring minds reading about the threat of massive inflation looming on the horizon are asking, "Where's the inflationary beef?" It's a good question too, so let's search far and wide for symptoms.

US CPI Drops Most Since 1950

Bloomberg notes US Consumer Prices Unchanged, Matching Forecasts: "The cost of living in the US was unchanged in July, and dropped by the most since 1950 from a year ago, as the recession sapped companies' pricing power."

Spain's Inflation At Record Low

Forbes is reporting Spain's inflation at record low in July.

"Spanish consumer prices fell in July at the steepest rate since records began in 1962 but were expected to have hit bottom as oil and food prices recovered.

"Consumer prices were down 1.4% year-on-year in July, final National Statistics Institute data showed on Thursday, in line with economists' forecasts."

Eurozone Prices Fall Record .7%

Bloomberg is reporting European Consumer Prices Drop More Than Estimated.

"European consumer prices dropped more than initially estimated in July as energy costs decreased and rising unemployment prompted households to cut spending.

"Prices in the 16-member euro region fell by a record 0.7% from the year-earlier month after declining 0.1% in June. Adding to signs of waning price pressures, European producer prices dropped a record 6.6% in July from a year earlier.

"Unilever (UN), the world's second-largest consumer-goods maker, said on August 6 that price cuts helped boost Western European sales in the second quarter. Paris-based Carrefour, Europe's largest retailer, last month reported a second straight drop in quarterly sales due to 'tough' conditions in France and Spain."

German Prices Drop First Time in 22 Years

Spiegel Online is reporting German Consumer Prices Fall For First Time in 22 Years.

"This week German statisticians confirmed the first annual decline in consumer prices in the country for more than 22 years. The country's Federal Statistics Office released figures showing that consumer prices had dropped 0.5% in July compared to the same time last year. This is the first annual decrease since March 1987, before the reunification of Germany.

"Meanwhile another indicator of price movements, wholesale prices, also dropped -- by 10.6% in July year-on-year, the biggest fall since the data began to be compiled in 1968."

More Peas In The Pod

Earlier today, I spoke of Peas In The Deflationary Pod, noting that Walmart (WMT) is lowering prices on everything from baked beans to Black Angus beef to flat-panel TVs, and Safeway (SWY) slashed prices by as much as 25% on thousands of items including consumer staples like coffee, paper products, and laundry supplies.

Today, Bloomberg noted that "retailers including Nordstrom Inc. (JWN), Abercrombie & Fitch Co. (ANF) and American Eagle Outfitters Inc. (AEO) have used discounts to lure consumers on tight budgets in the aftermath of job losses and home-price declines."

Confusion Over Inflation

Articles like these have people confused about what inflation is. Indeed every week I have someone email me that "we have inflation and deflation at the same time."

No we don't. It's not possible. The reason: Falling prices are a symptom of deflation, not a definition of it. Falling prices frequently accompany deflation, but they're not a necessary ingredient.

If you need a refresher course, please read Inflation: What the Heck Is It?.

An Austrian Economic Definition of Inflation

In Austrian economic terms, inflation is a net increase of money supply and credit. Deflation is the opposite -- a net decrease in money supply and credit. In those terms, we either have inflation or we don't. Prices simply don't fit into the equation.

Not all those calling themselves Austrian economists would agree with that definition. Some consider money supply only. But even by that definition, we either have inflation or we don't.

The notion of inflation and deflation at the same time is a widely held belief based on brainwashing by the Fed about what inflation is. If everyone realized inflation involved money supply, the Fed and Central Bankers wouldn't be able to lie through their teeth about being "inflation fighters."

Once you realize that inflation involves money supply, you must come to the realization that the only source of inflation in the world comes from Central Bankers. Unfortunately, the media has bought the Fed's "inflation fighting" mantra, hook line and sinker, by talking about inflation as if it were prices.

Yes -- the prices of some things can rise while others fall. However, that will always be the case, from now until eternity. This makes the seemingly powerful statement, "We have inflation and deflation at the same time!" cute, but meaningless nonsense.

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