Close Your Mind and Repeat After Me

Now close your mind and repeat after me, there can't be any inflation while the output gap in the U.S. is so large. Now open your mind and notice that the year over year increase in import prices was 11.5%!

Go ahead and close your mind again and repeat after me, inflation can't be a problem when unemployment rates are so high. Now open your mind once again and realize that the Producer Price Index was up 4.6% on an un-adjusted basis for the 12 months ended in January 2010.

Ok one more time turn off your brain and listen to the mantra of Ben Bernanke et al, who claim that slow growth will keep inflation in check. Now open it up and read that the annual growth rate in the CPI was 2.6%.

Keep in mind all the above data on inflation are derived from government numbers. So absent their hedonics and substitution practices, the numbers would be much higher.

The truth is that anemic growth, high unemployment and output gaps cannot stop inflation from occurring. That's because they have little to do inflation. As I have said many times, if the money supply grows through the action of Fed purchases of Treasuries and MBS, we will have inflation regardless of the state of economic growth. In fact, less people employed in the manner of producing goods and services only exacerbates the problem of rising prices.  That point has been proven over and over again throughout the history of the United States and the world.

Now just try to resist the Steve Liesmans of the world who will tell you that it's just a onetime increase in food and energy, so you should ignore all the data. The above stats are Year over Year data and therefore, by definition, removes the volatility component that exists short term in the inflation indexes.