The ForecastIt was in January, 2021 that we first forecast that inflation would need to total 35% over time to fully offset the amount of new paper currency printed to pay for the increase in federal spending that had accelerated the year before. Since then prices of typical baskets of goods have increased about 20%, but commentators ignore that the “fire sale” printing rate has continued. But that’s a problem for tomorrow. For today our question is, why is consumer sentiment so very negative given that the posted inflation rate is moderating? Why the Hurt?The cause of the divergence between our lying eyes and what we’re told every day was created in 1983, just two years after the economic trauma of 1979-1981, when reported inflation reached 14% and short term interest rates neared 20%. In 1983 the ingredients of the Consumer Price Index were changed as interest rates were excluded from the calculation. For years it made no big difference, but that changed dramatically in 2023. Calculations by Bolhuis, Cramer, Shula and Summers in The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly in the National Bureau of Economic Research report in February show the CPI including interest rates, as it was done until 1983, hit 18% compared to the reported 3.4%. |
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According to the authors, that adjustment explains 70% of the difference in consumer sentiment from the level expected given the published CPI and the actual level. ProductivityThe only effective private sector antidote for inflation is increased productivity, at which programs from TheFormTool excel. See also our previous articles: Are You Ready for 35% Inflation? Something Evil This Way Comes: Inflation Inflation is Going to Grow, a Lot Click for a copy of the Newsletter where this article was originally published in April 2024. |
