Note that they are calling 2005 - 2007 an 'inflationary recession'. This quite neatly dovetails with the 1974-1975 inflationary recession provoked by a surge in inflation in 1973.

The surge is less obvious this time around, but the rise in early 2004 and the sustained higher inflation appears to be the cause, as the price of everything keeps creeping upwards, pinching consumer incomes and production costs.

Unlike the 1970s, credit is cheap this time around, and is filling the gap that high inflation normally puts between consumer incomes and spending, so it's not as disastrous that gas costs $3.50 US a gallon (when I see idiots driving 85 MPH+ on highways in the USA, there's a clear problem when they Still Don't Get It).

The double digit inflation of the 1970's and 1980's was fuelled by a move from the traditional wsingle-income family structure, to the two-family income structure that is the norm in this day and age.

During the 1970's and 1980's, increasing numbers of women entered the workforce. The percentage of women workers with full-time employment also increased over this period. The effect was a substantial rise in the incomes of many families, as womans paycheques supplemented those of their husbands. As the average incomes of families rose, companies could charge more for the products they sold, and still move their product. And many families could afford these higher prices without having to do without the things they could previously afford.

During the 1990's, family incomes stagnated, and there was a corresponding decline in inflation. Inflation never reached zero, and what inflation there was oustripped the any growth in incomes over the same period. It was mentioned on the National last night that the low? 6.1 unemployment rate is leading to upwards pressures on wages, and thus and increasing upwards pressure on inflation. Yet I see little reason to believe that any upwards pressure on wages will be across the board. This will mean that inflation will be kept in check, because if it rises too steeply, businesses will price their products above the point of diminishing returns.

Of course, I could be completely worng.

[ 12 June 2006: Message edited by: Left Turn ]

Now, though, nominal rates even for home mortgages are still low, and with all these fancy doodads like reverse mortgages, personal revolving lines of credit, near banks, you name it, you can get cheap credit even now, and just put your $50 of gas on the ol' credit card, and figure you'll pay it off out of your personal line of credit and carry the debt at 5%.

That's why even $3.50 a gallon in the US isn't as bad as it should seem for a lot of people.

In addition when you price gasoline in terms of the minimum wage, it still only takes about 40 minutes of work at the US federal minimum wage to get yourself a gallon of gas. Back in the 1990s, it was usually a buck-fifty US a gallon or so, so you work that out and it was, like, 15 minutes worth of work to get a gallon of gas.

quote:

---

I don't think that inflation will return to the double digit levels of the 1970's and 1980's.

---

Who cares. Inflation means every higher interest rates which means anyone with money to invest will reap huge profits once again. Hell we got banks that are falling over each other to provide line's of credit to investors so they can make even more money from rising mutual fund profits.

quote:

---

Second-Quarter Real Retail Sales Contract 1.3%; Employment Indicators Plunge As Inflation Soars; Fed President Suspects CPI Understatement. Collapsing economic activity and mounting inflation dominated last month's economic reporting.

---

Heh - when the Fed starts "suspecting CPI Understatement", you know the game's played out as far as it can with such shenanigans like Boskinizing the CPI to restate economic growth rates and suchlike.

The headline is a bang-on description of stagflation - collapsing demand amid rising prices. With the non-fudged CPI reporting on the main page showing inflation reaching almost 8%, it's clear that the 1970s scenario is definitely playing out; past an inflation rate of 8%, inflation sharply curbs economic activity and it's getting very close to that breakpoint as 2006 marches on.

[ 24 July 2006: Message edited by: West Coast Greeny ]

I wonder if it's possible to do the numbers to reflect 'inflation due to oil price increase' vs real inflation. My guess most of inflation right now is directly related to the rising oil (and ultimately energy) costs and not that much due to actual inflation.

West coast greenie.. Replace { to [:

{URL=http://yourlink.ca} text to click on{/URL}

We're better-equipped to deal with it now, since once burned, twice shy, but even so, oil is used in so many different ways that sustained high prices for oil products can't help but feed into the rest of the economy and affect wages and prices.

Re: West Coast Greeny's Reuters article.

I strongly suspect the Canadian statistics are "massaged" to some degree, although not as much as the US. The Bank of Canada has already built an inflationary bias into its monetary policy by stating that the inflation targets apply to the "core CPI" and not the overall. Since the core CPI tends to produce lower inflation rates than the overall, this is an implicit admission that the mania for inflation control in the 1980s and 1990s has failed for many reasons.

... FOR FIVE YEARS.

quote:

---

Statistics Canada admitted in its most recent inflation report on July 21 that it had underestimated the national inflation rate for five years because of a computer glitch.

The flawed computer formula was confined to the traveller's accommodations index that measures price fluctuations of hotel rooms.

---

Unfuckingbelievable. And I don't believe that rot about it being just the hotel room bit. They're worried about all the right-wing inflation hawks demanding interest-rate clobbering of Canada's economy at a time when the exchange rate is already unfavorable to manufacturers.

[ 17 August 2006: Message edited by: DrConway ]