Inflation is a process, not an event - Part I: Three inflati

[BoyRacer]

Inflation is a process, not an event - Part I: Three inflation fallacies → itulip.com/forums/showthread … post171585

• What have we forgotten the nature of inflation since the 1970s?
• Where is the U.S. economy in the transition from low to higher inflation?

Monetary authorities and economists focus on inflation expectations because inflation expectations have a way of becoming reality over time. Inflation expectations, after falling hard in 2008, have been steadily rising since early 2009, and actual inflation has tracked expectations, with a time lag, as usual. Recently, however, inflation and inflation expectations have started to dip again. Is it time for the Fed to hit the deflation spiral panic button?

Expectations of future inflation are informed by the past experience of consumers, both recent and distant. The longer inflation remains tame, the longer consumers extrapolate low inflation into the future even as evidence to the contrary begins to reveal itself. Wage and manufactured goods price inflation has been so low for so long that most of us can’t recognize the shift to a more inflationary environment as it is happening today, but it is, as we’ll show.

Study the relationship between inflation expectations and all-items price indexes over time and you’ll find that consumers form their short-term expectations of all-items price inflation based largely on current energy prices, and for good reason; all-items price inflation tracks energy price inflation closely as a major input cost both to producers and consumers.

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[Grizzly_Adams]

But, let’s not forget “Chapter 16: Fuzzy Numbers” from Chris Materson’s crash course in which he basically says that the inflation figures are “fixed”.

One risk to boost inflation numbers I see is; we (in the west) have continuously moved production to locations with lower & lower costs of production to reduce the costs of our “toys”. This cost reduction was then offset against our other (local) costs to make our overall inflation appear lessened, i.e. the cost of housing & energy increased but the cost of our Flat screen TVs reduced. Now we have reached China which, with its Dickensian labour standards, seems to represent (currently at least) the bottom on the outsourcing/cheap manufacturing stack, any inflation there should now feed directly into our own local inflation to increase rather than reduce our overall inflation. Unless there is an even cheaper location than China? Is there always a cheaper location?

[DeflationIsGood]

@Grizzly Adams

any inflation there should now feed directly into our own local inflation to increase rather than reduce our overall inflation. Unless there is an even cheaper location than China? Is there always a cheaper location?

Quite a few manufacturers are shifting production from China to Vietnam. Although, Vietnam alone couldnt supply the whole of the west with cheap manufactured goods.

If North Korea opens up. Manufacturing will shift there. China has it in its power to open up North Korea whenever it wants.

[dolanbaker]

@DeflationIsGood

@Grizzly Adams

any inflation there should now feed directly into our own local inflation to increase rather than reduce our overall inflation. Unless there is an even cheaper location than China? Is there always a cheaper location?

Quite a few manufacturers are shifting production from China to Vietnam. Although, Vietnam alone couldnt supply the whole of the west with cheap manufactured goods.

If North Korea opens up. Manufacturing will shift there. China has it in its power to open up North Korea whenever it wants.

Cheap labour is one thing, the quantity of cheap labour is another.
Population of North Korea is 23 Million, the country can bearly feed itself let alone have spare capacity to make toys for the west. Unless China decides to remove the regeme there.

At what point do people in the west cop on t the fact that the reason for the high unemployment is their habit of buying Chinese goods.

[Mossy_Heneberry]

@dolanbaker

At what point do people in the west cop on t the fact that the reason for the high unemployment is their habit of buying Chinese goods.

If people are buying cheaper chinese goods that means they have more money in their pockets to save or spend elsewhere, therefore boosting the local and national economy.