On a day when crude oil passes $104 a barrel and gold crosses $1,380 an ounce, we would like to reflect on inflation in the currency supply and inflation in commodities. In the grand cosmic drama of international relations, every country seems to be dealing with inflation in their own idiosyncratic ways.
In China, rising food prices gives reason to blatantly manipulate the data, as the government cuts the weighting of food prices in its price index this month in order to keep a lid on reported inflation. Price indices are supposed to represent a typical consumer’s consumption with a fixed basket of goods, so when the price of food rises, price indices should reflect that people will spend more on food. Perhaps the bureaucrats in the offices of China’s statistics bureau don’t realize that rising food prices mean consumers are forced to spend more on food.
In the United States, we make a show out of it—sending our own central bankers and finance ministers on television to deny any responsibility for inflation problems. According to them, it’s not the trillions in practically free loans given to banks, or the $1.4 trillion in new currency—it’s rising prosperity and demands for higher quality foods that are driving prices. It is hard to imagine a portrait of people in emerging markets rising out of abject poverty and suddenly demanding a filet mignon as a driver for higher food prices.
What China and the United States are saying and doing is completely at odds with what World Bank President Robert Zoellick is saying:
According to the U.N., the ranks of those in extreme poverty will swell to 1 billion by the end of this year, as food price increases filter down to consumers. So when bureaucrats, politicians, and corrupt economists tell you that inflation is under control, or there is no inflation, just think about this chart.