Inflation is Rising and Government Can’t Stop It.

You are standing in line at the checkout of your local supermarket. The cashier tallies up your tab and you are shocked at how much it is. It’s way more than last year and even more than last month. It dug a big hole in your weekly paycheck. On the way home you stop to fill your gas tank only to find that the price of gas has gone up 15 cents a gallon since your last fill up. You arrive home and check your mail and find that your landlord just raised the rent. These events are not random. They are happening all across America. It’s called inflation.

Meanwhile back at the US Federal Reserve the word is “not to worry” inflation is tame and there is nothing to be concerned about. Why the inflation rate for March was only .2%. It’s .2% if you play with the numbers just right. That .2% DOES NOT INCLUDE FOOD AND ENERGY. The Fed calls this the “Core Rate.” They leave out food and energy because Social Security checks are indexed to inflation. If they told the truth they would have to pay out more in Social Security.

The real numbers are that food jumped double the rate of inflation at .4%. Housing and rents rose .3% and gas prices are on the move higher just in the past two weeks, nearing the $4.00 per gallon price. Other costs for medical care, apparel, used cars and trucks, airline fares and tobacco also rose.

While it would be easy to blame the government, this time it is not the government’s fault. The real cause is due to the weather. Since 2002 the Midwest and West have been in a drought condition that has steadily gotten worse. In 2011 Texas was the driest on record. The weather condition in California is critical with water supplies being rationed. The drought has caused the price of fruits and vegetables to rise by 20% to 40%. The price of ground beef has risen to $3.55 per pound, up 56% since 2010.

The cattle industry is in shambles. Cattle do not have enough grazing pasture, forcing ranchers to sell off their herds. The cattle population is at 87.7 million head, the lowest since 1951. Ranchers are having to feed their remaining cattle hay to survive, driving hay prices to record levels. This will mean higher prices for ground beef and steaks by 5% to 10% this year. The important point to understand is that this will not end any time soon. It takes several years to replenish a herd and bring it to market.

With California’s water supply at critical levels, the amount of water left for irrigation is in doubt. This will mean smaller crops and will keep the prices at record levels. California is considered the breadbasket of America when it comes to fruits and vegetables.

Americans having to spend more for the basics of food, shelter and energy, will no doubt have less money left over for discretionary spending. Keep in mind that consumer spending accounts for 70% of GDP. For investors, this is a time to be cautious and perhaps stand aside to see how some of these trends will play out in the coming months.

5 Responses to Inflation is Rising and Government Can’t Stop It.

  1. debt debs says:

    Another interesting post, Connie! I’ve tweeted.

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