Where's the inflation?

It's been minimal since the 2008 crash. Job insecurity at home and low global demand for goods and services are keeping price pressures at bay.

By Charley Blaine May 16, 2013 8:26PM
Movers © Exactostock / SuperStock/SuperStockThe stock market pulled back on Thursday. Jobless claims bumped up a little, as a weaker-than-expected report on housing starts suggested worries about the health of the economy.

What few people talked about was if there were any great worries about inflation -- or if interest-rate cuts by central banks around the world, and moves to flood their banking system with cash to promote growth, were causing enormous inflationary pressures.

This was a change from the near-constant television chatter about how those big, bad central banks were going to destroy the economy as we know it. But the big fears are just fears so far. There isn't much inflation in the developed countries, certainly not the United States. Not yet, anyway.

Why only fears? Because of the damage caused by the Great Recession. Getting past both has made businesses and consumers so wary of big decisions.

You can see the issue in Thursday's Consumer Prices Index report. Prices fell in April, largely to falling gasoline prices. That aside, prices are rising less than 1.7% a year, and that's indicative of sluggish fundamentals, Nomura Securities said Thursday.
This is not to say that the Federal Reserve's big bond-buying programs -- known as quantitative easing -- won't be troublesome later. That is, in fact, the source of most of the criticism of the three rounds of QE so far.

The question is how does the Fed stop buying bonds and slowly sell them without pushing rates up so fast that the U.S. economy promptly stumbles. Bond prices move in opposite direction to interest rates. So if you sell lots of bonds prices will fall, pushing interest rates higher.

To help the economic recovery along, the Fed has kept interest rates at ultra-low levels. The 10-year Treasury note was yielding 1.865% on Thursday, down from 4.035% at the end of 2007 -- before the 2008 crash.

Critics also say the efforts really haven't worked. Supporters say the economy wouldn't be recovering much -- if at all -- without the Fed.

Here's what's happened.

The U.S. economy created some 7.4 million jobs between the end of 1999 and January 2007. It shed 8.7 million jobs -- 118% of the earlier gains - by February 2010.

About 6.1 million jobs have been created since then. The national unemployment rate is 7.6%. The rate for the unemployment, marginally employed and dropped out of the work force soared from 6.8% in October 2000 to  17.2% in October 2009 and has been pared down only to 13.9%.

Workers are scared what looks like job stability now is actually tenuous. The odds that a major union will strike for, say, 10% wage gains? Slim to none. The workers worry that the bosses will pack their manufacturing plants and move them somewhere else.

Just ask Boeing (BA) workers in Washington state. Boeing has announced it's moving about 1,500 information technology jobs in Seattle, a third of the total in the Puget Sound area, to Missouri and South Carolina. Why? Costs. Boeing opened a second production line for its 787 Dreamliner in South Carolina.

And if a company doesn't have a low-cost site in the United States, there's always China,  India or Vietnam. Or Mexico, where Honda Motor (HMC), Nissan (NSANY), Audi and Mazda are expanding or setting up new factories to service the North American markets. Good for the Kansas City Southern (KSU) railroad, but maybe not so good for domestic auto workers.

That's only part of why inflation is so not a problem in much of the world, says Chris Christopher, director, Global and U.S. Consumer Markets, at economic consulting firm IHS Global Insight.

Demand is weak around the world, he says. Southern Europe is basically in a depression. Northern Europe is struggling. France is in its third recession in four years. Britain narrowly has narrowly avoided one.

China was growing at a 10%-plus clip until the last few years; the growth rate was 7.7% in the first quarter. Growth in India and Brazil has dropped off.

China's slower growth has cut demand for Australian copper and other commodities.

A rising dollar has knocked down oil, gold and silver prices, in dollars anyway. The price of gold (-GC) in New York, now at about $1,387 an ounce, is off some 26% since its peak in the last summer of 2011 -- and 10.5% over the last 52 weeks. The price is up 15.1% in yen as the Japanese government has worked to push its currency lower.

Crude oil (-CL) in New York settled at $95.16 a barrel on Thursday and has been flat for the past few years.

To complicate matters, Christopher said, is the speed at which economic change is identified, transmitted and realized. Computers make information available in an instant.
That only accelerates decision-making.

At the same time, basic technological change has accelerated, making global markets far more accessible and putting pressure on existing businesses to keep costs and inflation low.

The Economist magazine noted this week that the basic shipping container -- which allows a company to move goods by train or truck to a seaport and then quickly onto a ship -- has been more responsible for growth in global trade than all of trade agreements negotiated in the last 50 years.

Panama is adding a third set of locks to the Panama Canal to be able to handle large container ships. The $5.25-billion project is expected finished in 2015.

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262Comments
May 16, 2013 10:12PM
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Where's Inflation, it is everywhere, go to the store and look at how small the packages and bottles of gotten. Tuna fish use to be 7 oz now it is 5, Oncor use to advertise 2 pound package 32 oz, now it is 28 oz. Anything sold by the quart, or pound shows you that there is inflation, go buy a pound of roast beef  and pay $10.00. Packages get smaller for the same price, that is how inflation is hiding. The Author must not live on a average person wages.
May 16, 2013 11:36PM
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The government has not lifted a finger for the average American except to lie to their faces straight on about everyting. There are almost 50-million Americans on Food Stamps. That's one-sixth of the whole country. Maybe the rest of the country feels nothing right now, but wait until that number reaches two-sixths, and then three-sixths. And the government is making every effort to cut that program down to nothing.  Been to the grocery store lately? No inflation? Another lie.

 

There has been no recovery. The government has stood by while tens of millions of American jobs were out-sourced. Jobs that will never be coming back. No jobs will be recovered. The government will continue to lie until the whole country reaches a tipping point where there isn't enough economic activity to support any economy at all. By that time, inflation, deflation, stagnation, none of it will matter at all.

 

There will be no recovery.

May 16, 2013 11:09PM
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The author must be a complete idiot.  Inflation is everywhere and it is at 25% not 8 or 10 %.  What a complete idiot, who is totally out of touch with groceries, gas, autos, air fares, furnitures, etc.
May 16, 2013 11:05PM
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they obviously haven't bought a gallon of milk recently
May 17, 2013 12:20AM
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Mr. Blaine the writer of this article lives in a fantasy. When you think $3.55 for a gallon of gas is cheap, or a loaf of bread being over $2.00 is cheap? I can't believe the things they think they can get by us any more. My way to fight back is being a tightwad.  (I ride my DRZ 400 motorcycle to work $7.00 a week for gas.) (I heat my home with firewood from dead tree's in the winter $30.00 a month for natural gas all year long. HOT WATER HEATER.) (I only cool my bedroom with a window AC unit that I sleep in. Summertime  electric bill $45.00) I cook outside in my brick oven or on my brick grill I built this spring It also burns wood, keeps the house from getting hot in the summer. I use a Ooma Telo for a home phone $3.72 a month. NO CELL PHONE Call and leave a message. Like the old days. 
May 17, 2013 12:48AM
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Where's the inflation?  Well my pension pays out $1697 a month take home.  My health insurance jumped by over $100 a month last year.  Before that it was $50 a month jump every year.  At the present $100 a month jump rate in 16 years, my entire pension will go for health insurance.  Seniors living with meager income feel inflation even if the rich people don't..
May 16, 2013 9:26PM
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So how much wealth was destroyed during the 2008-9 equity and real estate crash? Was it $4, 6, 8 or 10 trillion?  I had neighbors that had bought houses in 1990's for around $140,000 that had borrowed $100-200k for cars, big TV's and vacations because their houses were selling for $300-400k in our neighborhood.  I sold mine in 2010 for $330,000 and we paid off the 2nd home we'd bought in 2003 and put the rest in the bank at 0% interest for the last 3 years. There's no inflation because there's no money in consumers pockets or if there is they aren't buying junk made in China with it. The US is going to grow at 2-3% with 6-7% unemployment for the next 10-15 years. That's the new normal, get use to it.
May 16, 2013 10:15PM
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they keep saying gas prices are going down i would like to know where ,it has gone up here 90 cents a gallon more in the last month,are there a bunch of stupid people out there,,can someone explain where

 

May 17, 2013 12:26AM
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"Where's the inflation"? Oh its there. How can you miss it?
May 17, 2013 6:27AM
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Where is the Inflation? It's been commercialized so wealth mongers can profit from it. Packaging has gotten smaller on some items, others disappeared so higher priced brand items are the only choice. 90 million of us are unemployed or under-employed making the cost of anything inflated by comparison. A gross indecency has occurred simultaneously- the outrageous pumping of fiat dollars into Wall Street, diluting the real dollar as to weaken it's purchase power. All this while making irresponsible and greedy people so filthy rich that the rest of us will have no choice but to wipe them out just to recover the world for our children and future generations. Everything exists in cycles and apparently this was the high time for no ethics corruption and psychopathy. Sadly, when the dust settles, we will have lost so much and gained so little in this time. 
May 17, 2013 1:08AM
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Yep, it's at the grocery store, but I guess if you don't have to look at prices, they never change.
May 17, 2013 4:40AM
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Some People become Wealthy by paying attention to inflation and avoiding pricey items. They notice more than the others at times on their way UP. So when is the last time Gasoline has been below $3.00

What are Rental prices on average the last four years compared to the four year prior. Food, everyone that's actually affected by price, know food prices have soared. New and Use Cars are setting new Highs on Average Price Paid. They are NOT reducing prices when you eat out but maybe reducing the serving size.

If they don't see this as inflation, imagine what they do consider to be inflation. Clearly these folks live with Alice in Wonderland.

May 17, 2013 6:55AM
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Quantities are smaller in stores and prices are the same or up. Gas is at $3.75 per gallon. Interest rates are "artificially" low, stealing from those that have any money or savings. The government is pumping 85 Billion monthly into buying bad housing loans. National debt is 16 Trillion plus. 47 Million plus on food stamps. IT"S a shell game people. Why the hell do you think the government is buying so much ammunition??? When reality can no longer be held off by the governments smoke and mirrors hold on...

May 17, 2013 6:40AM
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I absolutely---positively--- can not believe the level of stupidity coming from the mouths of so called "economist" and so called "journalist" who sympathize with the same on the subject of inflation. All I can say is blow that smoke up someone else's #*!.
May 17, 2013 8:01AM
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Gosh, I must be buying all the wrong things that keep going up 3-10% per year. You know, all that silly useless stuff that no one really needs like food, home insurance, auto insurance, healthcare, education, property taxes........

 

There is one place I don't see any inflation, my paycheck.

May 17, 2013 7:19AM
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Has this Charley stooge ever gone into a grocery store? 
May 17, 2013 7:55AM
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Why is there no (statistical) inflation? Because the only thing keeping the economy afloat is the free fake money. The real economy sucks.
May 16, 2013 10:52PM
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how can labor expect to negotiate a fair share of the profits when all an employer has to do is outsource. Free trades a disaster for working americans.its why the divide between the rich and working americans has never been higher. To have inflation wages and prices need to rise. While prices have risen wages have remained stagnate. What this means is the worst of all possible outcomes for most americans.a declining standard of living. We cant end free trade fast enough

May 16, 2013 10:46PM
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I think it´s also because of weakness abroad, the dollar has been appreciating against the yen and the euro lately and it makes imports cheaper. At the same time, if this new tendency persists, job creation will suffer and recent gains may be reversed some.
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