this certainly would seem to explain recent economic developments, as well as forecast future economic direction ...
(snip)"Biflation... Not Deflation
Despite the seemingly tame headline inflation numbers, consumers never seem to see price declines in certain categories like education and health. For instance, prescription drug inflation escalated to 5% from less than 3% in 2007 and 2008.
So, it is pretty obvious what we have here--biflation--instead of deflation. Biflation is a state of the economy where inflation and deflation occur simultaneously. (Chart 1)
The price increase of commodities is caused by the increased money flow (via loose monetary policy) chasing them. On the other hand, the growth of economy is tempered with high unemployment and decreasing purchasing power. This has resulted in a greater amount of money directed toward essential items (inflation) and away from non-essential items and things required credit to buy such as house and cars (deflation).
Inflation In the Supply Chain
Furthermore, the price at the producer level paints an entirely different picture. Producer Price Index (PPI) for finished goods was up 5.5% year-over-year. Further up the supply chain, signs of inflation are even more worrisome.
The PPI for intermediate goods increased 8.6% year-over-year in April, while core PPI for crude materials, excluding food and energy, shot up 60% year-over-year in April (Chart 2). (snip)
(snip)"While all of that money Federal Reserve pumped into the system could in theory cause inflation, the Fed is counting on weak banks and slack in the economy would weigh against that. Indeed, it is likely that crude material price increases could begin to move down the supply chain; however, end markets are still too weak to allow a full price increase.
So, in the near term, biflation could be around through possibly 2012 with pockets of inflation seen in certain sectors such as energy and feedstock chemicals, and deflation/low inflation in other sectors, netted to a moderate headline inflation number."(snip)
from
There appear to be two important take-aways from Ms. Chu's analysis. The first is that the price of raw materials and 'essential' goods and services will continue to rise ... while the price of 'non-essential' goods and services will not. The second is that rising raw materials prices plus an ever shrinking pool of total customer dollars remaining to be spent on 'non-essential' goods and services will put pressure on profitability for a wide range of businesses dealing in 'non-essential' goods and services ( like for example lap dances ! )





Reply With Quote

Bookmarks