Inflation Is Here And Should Increase Significantly This Year

The Federal Reserve and Chairman Bernanke keep telling us that inflation is not a problem at this time. The “small amount” of inflation that is out there (Consumer Price Index or CPI of 1.5% in December 2010) is nothing to worry about and is manageable. In fact their goal is to get inflation up to 1-2%. Therefore, they need to keep pumping money into the financial system in order to get the economy on solid ground and create jobs.

However, inflation is here now and will most likely get much higher this year. Frank Shostak, an “Austrian School” economist, has written an article showing that there is about a 36 month lag time from an increase in money supply until inflation (as measured by the government) will begin to show up as inflation. Based on that 36 month lag time, he has estimated that inflation (CPI) will rise to 2.4% by September (versus 1.1% last September) and up to 4.4% by December.

Mr. Bernanke prefers the “Core-CPI” (The CPI minus food and energy) because it is less volatile. That inflation index in on the rise also. The estimate is for 1.5% in September and 2.7% by December vs. 0.8% in December of 2010.

Inflation is here and should increase significantly this year. Start to prepare now for a significant erosion in purchasing power and higher interest rates, whether Mr. Bernanke likes it or not.