Over just the past few days there has been a big increase in media stories about developing inflation. What’s most remarkable is that it’s still framed as controversial. Galloping commodity prices are acknowledged, but sometimes dismissed as mere recovery after a decade of decline.
What these dismissals miss is that those declines have only masked inflation that was there all along. Conventional economics doesn’t recognize that currency depreciation – inflation – doesn’t uniformly affect all prices at the same time. The theme has considerable variations, but the basic structure is that inflation first manifests in financial asset prices, later in commodity prices, then finally wages and consumer prices. Notice that the conventional measures of inflation all focus on the very last place it shows up. Using only consumer prices to measure inflation is like measuring the speed of a passing car by analyzing its exhaust fumes.
This is why Financology appears to be able to predict inflation before the mainstream recognizes it. But we’re not forecasting … we’re just avoiding the folly of focusing on trailing indicators. We called attention to this latest surge of inflation back in December 2020, in Inflation Is Here, and then highlighted our quantitative measure, the FDI, a few weeks later in FDI 2021 0206. Now, predictably, the mainstream is starting to see signs. But even then there is a lot of equivocation. It won’t be widely considered a done deal until it’s obvious in the last place it shows up … consumer prices.
But it’s already been nearly a year. This latest surge of inflation began on March 23, 2020, when the Federal Reserve announced unlimited QE, followed by aggressive fiscal measures. Gold prices exploded, followed by financial asset prices. And the inflationary consequences, just now hitting the headlines, are nothing to be trifled with … to quote Teri Hatcher on Seinfeld, they’re real, and they’re spectacular.