INFLATION A NEW BATTLE?COMMENT?

DEFINITION

According to Michael Hodges, “Inflation is the loss of constant purchasing value of the dollar,caused by an increase out of 'thin air' of the supply of money and debt creation by the financial system, with all debt marked-to-market value.”
“The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.”
In other words, “suddenly rising the prices of product or services,is called inflation.”
example 1: a postage stamp in the 1950s cost 3 cents; today's cost is 42 cents - 1,300% inflation;
example 2: monthly government Medicare insurance premiums paid by seniors was $5.30 in 1970; its now $96.40 - 1,889% inflation; (and up 70% past 5 years)
example3: several generations ago a person worked 1.4 months per year to pay for government; he now works 5 months.
And in the past, one wage-earner families lived well and built savings with minimal debt, many paying off their home and college-educating children without loans.

ABOUT INFLATION
INFLATION is the gravest economic concern (A BATTLE TO FIGHT)which has gripped India into its jagged tentacles. Inflation can be defined as the rise in overall price level in the economy, i.e. rise in prices of all the goods and services. When prices rise, each rupee buys less goods and services than it had been before, consequently eroding the purchasing power of money. It is measured through inflation rate- the annualized percentage change in a general price index (Consumer Price Index and Wholesale Price Index) over time. INFLATION is the gravest economic concern (A BATTLE TO FIGHT)which has gripped India into its jagged tentacles. Inflation can be defined as the rise in overall price level in the economy, i.e. rise in prices of all the goods and services. When prices rise, each rupee buys less goods and services than it had been before, consequently eroding the purchasing power of money.

DISCUSSION

MONEY SUPPLY UP, UP AND AWAY
DRIVES INFLATION ALL THE WAY
link:-http://grandfather-economic-report.com
A warning - MONEY SUPPLY explosion
creating loss of purchasing power of each dollar, plus exploding debt
"Inflation is always and everywhere a monetary phenomenon. To control inflation, you need to control the money supply." Milton Friedman, Nobel Laureate in Economics.
As money supply exploded 3,000% - The dollar's purchasing power collapsed 85%,
- - as proven by this chart.
The left chart compares growth of the broad money supply M3 (red curve) with the the shrinking value of a dollar as determined by the cost of living index (cpi-all items) - blue curve.
The rising red curve shows growth of the money supply since 1959, the value of which is shown on the left axis in billions of dollars - from $302 billion in 1959 to $11.5 trillion in 2006. ( M3 data: economagic.com).
The declining blue curve (taken from the chart at the top of this page) represents the falling buying value of a 1950 dollar, per the right axis shrinking from a value of 83 cents in 1959 to 11.1 cents in 2008 - representing89% loss in purchasing power since 1959.

INFLATION RATES
Annual inflation, measured in the WPI (Wholesale Price Index), jumped to a 13-year high of 11.05 per cent in the week ending 7 June 2008 from 8.75 per cent in the preceding week. Inflation has been rising rapidly since January 2008 and the weekly rise in inflation in the week ending on 7 June 2008 was the highest in the current calendar year.
This steep rise in inflation came mainly on account of the sharp jump in prices in the fuel group. Inflation in the fuel more than doubled to 16.25 per cent from 7.86 per cent in the week ending 31 March 2008. This was the highest rate of inflation in the fuel prices ever since 17 March 2001. The government had partially passed on the burden of the rising international crude oil prices to the Indian consumer by hiking the prices of petrol, diesel and LPG (liquid petroleum gas) by Rs.5 per litre, Rs.3 per litre and Rs.50 per 14.2 kg cylinder, respectively, with effect from 5 June 2008.

The rising inflation is due to the rising oil prices in the global markets which have increased to 135 dollars per barrel. The global demand for the oil is also on an increase with growing countries like China and India consuming more and more oil and the already developed economies not reducing their fuel demand. Every time the our country goes through a price hike in crude oil, there is an economic and political crisis. This time around as well, the government is under great pressure from the public at large and opposition parties.

The R.B.I has increased repo rate i.e. the rate at which it lends money to commercial banks and also raised the cash reserve ratio as part of its defence mechanism. But this is not enough as the base of monetary policy in India is still very weak. Efforts should be made to appreciate rupee so as to reduce the cost of imports of crude oil and reduce inflation. Hiking the interest rate is another option which will reduce the purchasing power of people and thus inflation. But the R.B.I cannot hike the interest rate beyond a certain level as it will hinder the growth of infrastructure which is essential to support the growth of the economy.

According to Robert Prior-Wandesforde, chief Indian economist at HSBC in Singapore inflation figures are likely to remain in double digits for the next nine months and peak at 15 percent by the end of 2008. But according to Chief Economic Advisor to the Finance Ministry Arvind Virmani inflation will have a clear downward trend in October-December this year. Whether any of these predictions will come true or not is still to be seen.



Food inflation

Food Inflation
Pranab Mukherjee assured that the government will be able to contain surging inflation. He further said that within the food basket, the prices of items like vegetables including onion, fruits, milk, egg and meat are becoming dearer.Government is pressurized with the high food inflation which stood at 16.91 % in the year to Jan. 1. Inflation eased marginally from 18.3 % recorded in late December, which was the highest in more than a year.The various steps to combat inflation may include reduction of duties on milk power, banning exports of wheat products and taking more essential commodities out of the futures market.
After the Prime Minister’s consultations, the decision of the Agriculture Ministry to export five lakh tonnes of sugar was referred to an empowered group of ministers, headed by Mukherjee



HOW TO CONTROL INFLATION
ZERO INFLATION GOAL
The following chart's black plot line shows the inflation rate each year since 1952, as measured by the Consumer Price Index.The red curve represents govt.'s revised method, discussed below.

link:-http://grandfather-economic-report.com

The first thing to note in this chart is today's inflation rate is the highest in 16 years - and well above the 1952-1967 period. Why did media and government officials imply inflation is 'dead', saying its the 'lowest in our life time'? Many citizens were misled by such erroneous statements and their planning for the future suffered.
Look to the left end of the chart. For the period 1952-1965 the inflation rate averaged about 1% or less per year (the dashed red line). This low-inflation period produced strong inflation-adjusted family income growth. Therefore, we set the 1% level as our target - - noted by the dashed-red line on the chart. In the mid-1960's inflation rates began a dramatic rise, for the next 2 decades. Once inflation rates exceeded about 3% inflation-adjusted family incomes and savings rates ceased to grow, as seen in the Family Income Report - - just as today's incomes are not growing while family savings plummet. The Reagan Era of the early 1980's started excessive rates downward toward the 2% level. Since then, inflation rates were much higher than the 1% rate.
Computer price impact:-
Another item to keep in mind is the impact on the total CPI of rapidly declining computer prices. From 1987 to 1993 computer prices tracked the CPI, but then computer prices dropped much faster than did the over-all CPI. excluding the computer component of the CPI, the non-computer CPI in 1997 was higher than in 1993 - 40% higher.
Inflation works as long as the housewife thinks
“I need a new frying pan badly. But prices are too high today; I shall wait until they drop again.” It comes to an abrupt end when people discover that the inflation will continue, that it causes the rise in prices, and that therefore prices will skyrocket infinitely. The critical stage begins when the housewife thinks: “I don’t need a new frying pan today; I may need one in a year or two. But I’ll buy it today because it will be much more expensive later.” Then the catastrophic end of the inflation is close. In its last stage the housewife thinks: “I don’t need another table; I shall never need one. But it’s wiser to buy a table than keep these scraps of paper that the government calls money, one minute longer.' - Ludwig von Mises - Theory of Money and Credi

A BOTTOM – LINE(conclusion)
We should not accept government monkeying with how they measure and report cost of living changes, UNLESS every time they report numbers via their new method they also publish the results via prior measurement methods in a chart such as the above.We should not accept higher than a 0.5% to 1% rate of inflation .We should not provide cost of living protection to federal and state & local government employees, or welfare recipients and seniors if not equally provided to all families, as such is a negative to equality and a negative to citizen awareness of true facts regarding inflation. We must make sure government employees do not receive compensation packages above the private sector, and they must be adjusted downward considering government employees often have more protection from layoffs. it's time to budget for government spending growth much slower than growth of the economy, aiming toward ratios experienced when our nation produced trade surpluses, low inflation and strong long-term increases in family incomes and savings with but one worker per family.