Rising prices of raisins – The real effect of rampant inflation and FX
Inflation is out of control. Now, we mostly agree that the Fed’s official inflation numbers are just – ridiculous. But the real inflation, is even harder to quantify, and more subtle – as we explain in Splitting Pennies – Understanding Forex. What drives inflation is NOT Adam Smith’s “Supply and Demand” – an interesting idea but completely static, and completely irrelevant for practical applications – and certainly not useful for business, or economic forcasting. Inflation is a simple function of monetary policy, multiplied by FX. That means, in today’s world, inflation must be counted including the FX markets because – no matter how much USD the Fed prints, it’s constantly being exchanged for Euros and Yen on the open FX markets. FX is a limited, finite system. But the USD itself – is not. It’s defined by other currencies, and the market value of the USD vs. others.
Other less quantitative signs of inflation:
- Reduction of quality
- Less quantity, but for the same price (less chips in the bag, every year)
- Intentional, engineered ‘appearance’ of more (there are less chips, and bag is bigger too)
- Accompanying marketing ‘feel good’ slogans
The best signs of real inflation, not the academic mumbo jumbo Fedspeak produced by The Fed and Federal Economic Departments (like BEA), is FX – and consumer goods. Because we need energy, we need food. Without food and energy, society can’t function. We can live without iphones, we can live without Tesla, we can live without many ‘industries’ – but we can’t live without food, at least based on our modern consumption system used by most human beings on this small planet Earth. And speaking of iphones, they all rely on energy – Apple (AAPL) investors should hedge their bets with energy stocks. We can expect that high-tech products have inflation, but take a look at the real inflation, the rising prices of raisins:
You wouldn’t think this is unusual, based on data from the raisin growers:
So what gives? Here’s the deal. Recently I learned my wife is pregnant and so we’ve changed our diet (in addition to our whole lives – that’s another topic). Having a dash of chemicals here and there for an adult is one thing, but for a developing newborn and pregnant mother, it’s out of the question. We have in the south Earthfare, which is notably much more picky and choosy than WholeFoods, their customers more fussy and thus everything is much more expensive. But the point here is that these raisins, are like the raisins we used to get really cheaply, 20 or 30 years ago. Now you have to go to a place like Earthfare to get real food, by real I mean not artificial, loaded with chemicals, fillers, and other things that make for a good science experiment. Health is another topic, but economically speaking – this is an excellent example …read more
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