Ok so the "nielsen headline shopping basket" has g

Inflation is supposed to be ~3% right...

Fuel has skyrocketed, rents are up, groceries apparently up 28%... If the media is basing their headlines on any substance... inflation just went through the roof... people will be queuing up for loaves of bread in no time.... yet inflation seems relatively low....?

Whats sitting so heavily on the other side of the seesaw to keep inflation low?

if you have a link to the article it would be good to read it again

milk/cheese have definitely gone up I know that because I baulked the other day when I went to buy 2 litres of milk at the 4-Square and they charged me $5 for the privilege

I largely ignored that article when I first saw it though as 28% sounded like complete tripe so I just didn't bother to find out how they managed to twist things in order to arrive at that figure


a link to stats.govt.nz is here though and breaks the CPI figure down to a very basic level

so it could be attributed to the 1.2% drop in culture/recreation (whatever that means)

Yeah have been keeping my eye on this too, especially that article that claimed up to 28% in food prices.....

For the record how you perceive inflation can depend on how you define it and what economic school of thought you follow... for instance Austrian economists do not define inflation as simply an increase in prices (such as conventional wisdom) rather they define it as an increase in the money supply, which can and will (though not necessarily immediately) cause an increase in prices, and when it does show up, it won’t all display across the CPI either, sometimes just in one area like housing or shares.

Monetarists tend to perceive it as being primarily the cause of monetary policy. Milton Friedman’s famous quote for instance (which I don’t personally ascribe to) is that inflation is "always and everywhere a monetary phenomenon"

Proto-Keynesians' perceive it as having causes primarily in changing demand within an economy

I however tend to perceive inflation (and I define it as an increase in prices) as having multiple causes, of which the money supply is only one factor (a powerful and often domineering factor but not the only) along with of course “demand pull” and “force push” causation.

In this instance I have this vague chart in my head which I have ascribed various aspects rising prices, percentages of potential causes.


EG:

Fuel prices are rising due to increased world demand for oil, due partly to a commodity/investment boom which is a hangover from the sub prime meltdowns ongoing effects. On top of presently existing and constantly increasing (in the case of China) demand from the worlds different countries which is most certainly causing a supply shock or force push inflation on food prices here in NZ.

Rent is due to high interest rates/expensive mortgages, causing asset holders to increase their charges.

Diary is increasing partly due to Fontera having market power, increasing world demand and a shortage of supply of diary, also higher transportation costs from fuel prices.

I see inflation as having multiple causes which forces are operating asynchronously... of which in this case specifically a few different forces and their results have spiked simultaneously and seemed like they may have had one initial cause, but are in fact from multiple areas.

I hope that dribble made sense, I couldn't think of a better way to construe that at this hour...

There is also a way governments manipulate the figures when they are inflating the economy by dividing up inflation into core and headline, where core does NOT include food or energy.
The rationale behind this is that non core items are more volatile and experience temporary price shocks that distort CPI.
This distinction was introduced in the US in 1975 and of course is considered to result in understating inflation.

it means people arent buying their (party)pills legally anymore

On the topic of inflation (excuse the large post, scroll past it, if it’s unbearable)

One interesting aspect I learnt from Milton Friedman recently via reading his books is how monetary policy can create an increase in the money supply (inevitably causing inflation) without actually printing any additional fiat currency.

How does that work, one may ask?

Well for one thing there is the ‘reserve requirement ratio’ which is connected to our ‘fractional reserve banking system’ where only a fraction of a reserve deposited needs to be held at any one time by commercial banks. This is the ‘reserve requirement ratio’ I am referring to and it is now often dictated by central bank authorities, which as you might expect, have the power to alter it.

As a side note, prior to central banks it was simply regulated by the commercial banks themselves. Which was still (despite what you might think) maintained at a reasonable level for good business practices for 1) having cash available for new and present customers and 2) a precautionary measure, should (in the unlikely event) a large portion of the banks customers come in at the same time and demanded their deposits withdrawn simultaneously.

Of course if ALL a banks customers came in at the same time and demanded their deposits it would be impossible to met that demand (given it only had a fraction of their reserves available) and would need to default on payments and probably declare insolvency if no other bank would lend it the funds. Thus the reserve ratio was required regardless of having a central bank or not, which is one of the primary reasons central banks were invented in the first place, to act as lenders of last resort for commercial banks (when and if they started defaulting in payments) in attempt to maintain economic stability.

In the past however more prudent and prestigious banks would set themselves a higher reserve ratio and declare such to the public, to build their reputations as safe institutes and to attract customers who might desire their funds kept safe. Usually however they may have a higher interest rate on loans or something to make up for it. Needless to say, the ‘fractional reserve banking system’ was a major contributing factor in how banks collapsed during the great depression via the banking panics that ensured as everyone ran from bank to bank attempting to get money out of the failing system. Parallels can certainly be drawn to the general lack of confidence that now resides in fiancé companies.

Anyway that aside, an increase in the money supply via changing the reserve ratio works like this; you walk into a bank and deposit $100. The bank can then lend that out with interest to another customer as a loan, but it must keep a fraction of that deposit in its reserves. Say (to keep it simple) 10%. So for this example the reserve ratio is 10% which is $10. Well the central bank authority can change the reserve ratio so that its now only 5% or $5. Thus an additional 5% (down from what was just 10%) out of every $100 deposited in commercial banks will now be available for additional lending, which may not seem like a lot initially, but when considered spread across an entire economy, can cause an increase in the money supply (read: ready cash available) and can cause inflationary effects via the additional spending that results.

Another way an increase in the money supply can result without the central bank printing additional fiat is from government spending from the central banks or its own Treasuries vaults. This is where the government needs to acquire access to funds for its fiscal policies (often used in war time and which I will use for this example) and approaches the central bank authority requesting access to its reserve funds, which were (up until this point) not being used and hence had no effect on the operating supply and velocity (money changing hands) of spending within the economy.

So the central bank agrees to grant access to the government, of its reserve funds for this war, but will as a consequence require treasury bonds issued as payment. The government issues the central bank bonds, the central bank then allocates the money to the government as promised, the government spends this money towards a variety of public works programs and/or private companies to boost military technology… and these military companies or workers paid from the public projects then deposit their payments into commercial banks.

Thus via a circular process these commercial banks now have access to additional money deposited into their reserves (that were not available in the system prior) and thus they begin lending out (with interest) in the prospect of making profit. This too often causes inflation without any additional fiat money being printed via the printing press…. Wars are notorious for causing inflation as we all know.

Interestingly the reverse process of issuing bonds can be used to reduce the money supply. This works via the central bank issuing bonds and making them available to the public to purchase via open market operations, which as an incentive these bonds mature over a specific time period and are sometimes quite a good investment, the money that is handed over for the bonds is then (unbeknownst to many purchasing them) taken out of the economy and stored back in the reserve vaults of the central bank, thus taking it out of operation and reducing inflationary pressure.

I'm not sure how often this is used though.

However while the OCED and Bollard have warned our Government to stop spending, (despite Phil Goff just giving the defense force a 10% pay rise which I’m not against by the way) I don’t think they are spending quite to the same extent anymore, and thus I think are not the primary contributor for these spikes we have just observed in New Zealand’s food, fuel et al.

Its hard to be sure though, one must remember that there is always a certain amount of speculation involved, even for us economic pundits, especially if one does not have access to or has not researched all the available statistics in their entirety.

*finance companies

todays ABN AMRO commentary was too apt not to post

Economic comment
Perpetual struggle
Dario Perkins
"Don't tell me about the press. I know exactly who reads the papers: the Daily Mirror is read
by people who think they run the country; The Guardian is read by people who think they
ought to run the country; The Times is read by people who actually do run the country; the
Daily Mail is read by the wives of the people who run the country; the Financial Times is
read by people who own the country; the Morning Star is read by people who think the
country ought to be run by another country; And The Daily Telegraph is read by people who
think it is" (Jim Hacker in Yes Prime Minister). The British press rarely agree on anything.
Unusually though, there is now near-unanimity on one important issue: inflation is back.
Given we warned about this two years ago, how can anyone now resist voting for us in the
2008 Extel survey?
Last week, even the British tabloids dedicated double-page spreads to the rampant price
increases now being observed in UK supermarkets (admittedly, somewhere behind the four
pages they devoted to Nereida Gallardo, Ronaldo's new girlfriend). And it's not just the UK
that is experiencing the return of inflation. Brent crude oil prices recently hit a record high of
$115bbl. Global food prices are up more than 40% YOY. In recent years, some economists
have argued we should ignore headline inflation rates because temporary increases in
energy prices have distorted them. But with food prices now also rising rapidly, this
argument looks increasingly bogus. Together, food and energy account for almost onequarter
of the typical CPI.
Not all economies are equally vulnerable to this inflation threat. Obviously, the first wave of
inflation, coming largely from imported prices, should hit small, open economies hardest.
Many of the European economies are particularly exposed. Currency weakness could
further intensify these pressures, as in the UK. So countries with large current-account
deficits and quick 'pass-through' are most at risk. The possibility of 'second-round' effects
also comes into play. The inflation shock will be more persistent in those economies where it
seeps through into wages and the prices of other goods and services. This is most likely
where there is limited spare capacity, particularly in those economies that have inefficient
product and labour markets.
Our indicator suggests inflation risk is considerable across most OECD economies. Given
their exposure to imports, limited spare capacity and inflexible markets, the European
economies seem particularly vulnerable. The UK is probably more at risk than the euro area
because sterling could decline further. In contrast, the US seems relatively well placed.
Though it also has a large trade deficit, currency pass-through is more limited and domestic
slack could help contain domestically generated price pressures in the short term. But we
are ignoring the policy response. Ultimately, policymakers 'choose' their inflation rates. So
far, the Europeans are refusing to accommodate the inflation shock. By rigidly sticking to
their inflation targets, they can preserve longer-term price stability. It's difficult to be so
confident about the Fed's credibility, particularly as it still explicitly ignores food and energy
prices.

Well clearly the 28% the media are spinning can't be for the standard basket of food used for CPI calculations - the food component of that is at 1.8% for the quarter so sub-4% for the year...
Commentary on food from the March quarter:

Dammit, I thought this thread was about where I can get G

The other issue is that people will often substitute one product for another where the price of the first product has risen, but the price of the second product is constant.

A further issue in measuring inflation is technological change - so the basket of goods is altered over time to account for this. IE: a dvd player may be in the basket now rather than a VCR.

Also, unmeasured quality change could mean that inflation is overstated. Computers these days are twice as fast as a couple of years ago, but you pay about the same price. You could argue the price has effectively halved as you're getting more bang for your buck.

If you want a decent pay rise, join a union or organise one on your site.




Simple as that.

Fuck off and die with your union shit