Falling Inflation?

I have been reading articles regarding falling inflation rates and how some experts are worried about this.  China just decreased interest rates for the first time in two years our unemployment rate is falling, consumer confidence and spending is up.  Inflation is falling?  Well, not so fast while we look at the big picture.

This is one thing that always burns me about having an economic recession as we have recently experienced for the past six year.  Upon improvement to the economy there is very little correction to market prices and cost of living adjustments to the consumer.  Meaning, if inflation were truly falling as some experts for some reason fear why are groceries, consumer goods and services, energy cost, interest rate adjustments, utilities and industrial goods etc. adjusting with this so called period of falling inflation?  Don't ever expect to see prices again which we had prior to the recession.  It is easy for both big and small business to quickly raise prices but lowering them somehow taboo as the economy corrects itself as ours has been doing over the past couple of years.

Lets take a quick look at grocery prices.  As of October 2014 the national average price for ground beef 70/30 hamburger is $4.154 per pound.  Hamburger prices in 2007 just prior to the beginning of our last recession was $2.372 per pound.  That is a $1.79 per pound increase in a 7 year period of time and that is on just one common grocery item.  This is a good example of what I am trying to explain to you.  I don't expect to see hamburger prices at $2.37 per pound again, but there continues to be a rinse in cost to the consumer that continues to fast out pace the cost of living furthering the gap which makes our consumer dollar less powerful and cost you more money that you cannot save, invest, put away for your child's college fund etc.

The only consumer product we have seen fall in price for the past year is fuel cost.  This largely due to over production of oil and a surplus of reserves.  We have seen some relief at the gas pumps when filling our cars, but we continue to be taken advantage of in other areas.  Airlines companies certainly have NOT lowered prices on airline tickets.  In August 2014 I booked a trip to fly to Minneapolis, MN to see my family over Christmas.  To book that same flight on the same airlines with the same rental car would cost me over $125.00 more.  The airlines companies have done us no favors as fuel costs have dramatically drop for them they have ignored passing on any of this savings to the consumer.

As for the recent fall of lending interest rates in China which dropped them to 5.6% they are still well over our lending interest rate which are in the neighborhood of 3.5%.  Housing continues to struggle and new building remains extremely low.  Falling unemployment rates are largely related to people accepting temporary holiday employment and drastic under employment largely taking on of fast food jobs and retail employment or falling off the grid as they are no longer eligible to get unemployment, or live in a State that is not counted in the unemployment figures such as South Carolina due to not getting government unemployment compensation for their refusal to pay the amounts required by the state to receive it.  So unemployment rates are highly inaccurate right now due to these reasons and others.  Consumer confidence and spending is up but for the wrong reason.  They "think" things are going to get better and that we are in a period of great recovery and growth while that is simply not true.  Our national debt continues to rise vastly with every tick of the clock, our government continues to spend more than it takes in.  We give away money, donations, food, and resources to other countries that we currently cannot afford to give, even borrowing money from China so we can give it to another country to help them.  Inflation of consumer goods and services are still increasing faster than the cost of living.  Bottom line...Inflation is NOT FALLING, it is growing in leaps and bounds both to the consumer (you and me) and for the country we love, the United States of America.

Gus S.

Disclaimer: Make sure to review any information found on this blog site with your personal financial advisor before making any decisions. I am providing general information and not financial advise. I am not a licensed stockbroker or financial advisor.