Hi C2. I strongly disagree with the contention that the inflation rate in the US is much above the reported, currently around 4.5%.
Bill Gross has presented a serious analysis some time ago on what the inflation rate would be if all the new inflation metrics, such as hedonics etc., were undone, and he came up with about a one percent difference.
Also, there are serious arguments that there are many aspects of new products, such as new medical procedures and drugs, whose inflation effect is over reported. In other words, even though they are costlier and result in a rise in medical cost inflation, they also increase life spans and the quality of life, and this beneficial effect is not captured.
A view that inflation today is really 7 to 9%, instead of the reported 4.5% is illogical. It implies that real GDP is falling at a rate of 3-4%, and has been falling at that rate for a number of years. This is equivalent to a very long and deep recession, almost on par with the Great Depression. Since unemployment rates are far for the 25% we experienced during the Depression, such inflation views are absurd.
And an anecdote. My sister in law, who lives in Greece, visited her ancestral village for Easter, took pictures and videos of the vist with her digital camera, uploaded them to picasa, send us an email, and we viewed them yesterday. It was as if we were there. Total cost: 0. How much would that have been worth 20 or even 10 years ago? |
