Hey, everything I read lately tells me inflation is about as alive as the folks who habituate the local cemetery. Not only that, one of Wall Street's most widely quoted economists poked fun at me the other day when I asked him if he was worried about inflation. "Where have you been living, in Mars?" he asked. "What inflation? People talk about it, but like the genie in the bottle. It's not real now. Didn't you see the latest CPI numbers?"
Those latest Consumer Price Index numbers he's referring to, issued last week, indeed give credence to his ridicule of my question. The index showed a puny rise of 0.1% for the 12 months ended in May, down from an 0.4% gain in the 12-month period concluded in April. That slight May increase resulted in the biggest drop since 1950.
Actually, in the latest 12 months, the CPI, excluding food, fell 1.2%. As for food prices, they rose 6.4% in the period, which was the slowest rate of growth since October of 2008. Obviously, a slumping economy, a 25-year high in unemployment and tumbling values of homes and stock portfolios are prompting loads of people to pinch pennies, which is weighing heavily on potential price increases.
Okay, nationally, Uncle Sam is telling us, inflation is sharply on the wane. There's even plenty of talk about deflation (falling prices amid declining economic activity). Still, speaking for myself and some friends I've spoken to in the Big Apple, signs of rising prices are all over New York City despite the lowest CPI hike in 59 years, a slumping economy, plenty of price reductions in New York stores and my economist's friend's comments to the contrary. Here are a number of examples:
- A slice of pizza with mushrooms at the local pizza joint has risen from $1.75 to $2.25 (29%).
These 11 price hikes amount to an average increase per product and service of nearly 31.5%, more than 15 fold the reported government inflation rate in recent years of about 2%. Probably, without much thought, I could easily add another 20 examples (such as my electricity, maintenance and medical bills, as well as the cost of a taxi or mailing a letter). And I'm certain you could, too.
In any event, the message is clear. Government statistics notwithstanding, inflation, as a cost of everyday living, especially in New York, is hardly as contained as it's supposedly cracked up to be or on its last leg.
As far as Wall Street goes, many market pros believe that those who see inflation as a non-event are naive. Their view: that aggressive global stimulus and heavy money printing here to revitalize a sagging economy and bail out troubled corporate giants inevitably mean higher inflation is as certain as death and taxes.
As Tony Sagami, an analyst at Weiss Research of Jupiter, Fla., sees it, "An inflation crisis is not coming. It's already rearing its head and it's going to get a lot worse."
If our inflation worry-warts are right, the repercussions are cause for concern. Prices for all sorts of products and services will trend higher and, sooner or later, we'll face higher interest (and higher mortgage) rates, although the Federal Reserve is apt to tread lightly in tightening the monetary reins because of a weak economy. Such a scenario, of course, would also mean additional pressure on the economy and, ugh, the bloodied stock market should prepare itself for another thrashing.
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