John Ransom

Inflation has been tame in the U.S. during the Obama administration, at least in regards to things the government is worried about, like wages.

If one looks at the official CPI measurements, inflation isn’t a problem. Deflation however could be, according to the Fed’s Politburo of Governors.

Falling prices, which presumably would give the rest of us relief at the checkout counter, if it wouldn’t do anything to add to our paycheck, is the biggest danger to the safety of our Republic, say central bankers.

“The Consumer Price Index… decreased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.0 percent before seasonal adjustment.”

That puts inflation just between one and none for the year.

Officially, anyway.

But the system of measurement that the government uses is geared to only record inflationary pressures in areas the government would like to control, like how much your paycheck and my paycheck is growing.

For the Fed, the ultimate sin of the economy is rising wages. When wages start to go up, look out. That’s when the Fed will start to hike interest rates to “cool” things off.

If you look at the way inflation was calculated prior to either the “reforms” in calculating CPI made by the government in 1990 or 1980, says the economic site ShadowStats, inflation is running near 5 percent or 9 percent respectively.

That rate includes the things that matter to you and me like food, energy, rents and clothes.

You know? The little things in life.

And those rates are quite unsettling considering how anemic our economy is.

I would say that anything above 10 percent inflation as calculated using the “prior to 1980” formula is likely a strain on the economy. The strain could cause—likely would cause-- the country to eventually go into a recessionary spiral no matter how low our wages remain or how anemic economic velocity is here at home.

The chart above tends to confirm that there was some link between spiking inflationary pressures and the financial crash of 2008.

As I have said before, I think the culprit was rising gas prices. Others may disagree.

John Ransom

John Ransom’s writings on politics and finance have appeared in the Los Angeles Business Journal, the Colorado Statesman, Pajamas Media and Registered Rep Magazine amongst others. Until 9/11, Ransom worked primarily in finance as an investment executive for NYSE member firm Raymond James and Associates, JW Charles and as a new business development executive at Mutual Service Corporation. He lives in San Diego. You can follow him on twitter @bamransom.