In the first five months of the year, data from the Bureau of Labor Statistics (BLS) says that the U.S. economy had inflation of just 0.2%—that’s two-tenths of one percent. (Source: Bureau of Labor Statistics, last accessed June 18, 2015.)
But let me ask you; when is the last time you paid less for something when shopping?
Fruit prices are rising. For example, Fuji apples have increased in price by 20% per pound from January to May of this year. (Source: U.S. Department of Agriculture, last accessed June 18, 2015.) If we do some basic math, we see that the price of apples has gone up four percent each month this year.
Dairy is going up, too. In January, a dozen large white eggs would cost you about $1.40. In June, the same eggs cost $1.88. (Source: U.S. Department of Agriculture, June 12, 2015.) This represents an increase of over 34% for eggs so far in 2015!
You know why the “official” data isn’t showing the high inflation we are experiencing in the stores? The government takes out food and energy prices from its inflation calculations—things that actually matter to the average American.
As I see it, real inflation in the U.S. economy is running at about four to five percent per year, not the 0.2% the government is telling us.
Why Inflation Is Headed Higher
Inflation is headed much higher in the years ahead, thanks to an ever-rising money supply. Just look at the chart below.
U.S. Economy Money Supply; 2005-2015
Chart courtesy of www.StockCharts.com
Between 2010 and June of 2015, the money supply in the U.S. economy increased from $9.47 trillion to $13.28 trillion, an increase of over 40%. This is a classic example of monetary inflation—also known as inflation in the money supply.
Understand this: when there’s too much of something, its value declines. And there are more dollars in circulation in the U.S. economy today than ever before.
Look back at history: whenever a country printed more of its paper money (also known as fiat currency), inflation followed.
A Rational Look at Inflation
In July of 2014, the U.S. dollar started to rise in value against other world currencies as the Federal Reserve made it clear it would raise interest rates and it looked like the euro was on the cusp of collapse.
- The rise in U.S. interest rates looks like it will be very gradual;
- The European Central Bank has started printing its own money to save Europe; and
- Greece looks like it may stay in the eurozone, thus making the euro viable once more…
…the U.S. dollar has started to decline in value.
In fact, since the beginning of March 2015 until today, the U.S. dollar has lost five percent of its value against other world currencies. A five percent decline in the value of the greenback in three months is a huge thing. As the U.S. dollar declines in value, it places more pressure on inflation, as it costs Americans even more money to import goods.
Between the unprecedented increase in the U.S. money supply and the declining value of the greenback, inflation will become a big problem in the years ahead.