by Peter Schiff – June 13, 2018
Over the last 12 months, the purchasing power of your dollar has dropped at the fastest rate since 2011.
According to the latest data released by the Bureau of Labor and Statistics, the Consumer Price Index (CPI) jumped by 2.8% year-over-year in May. That follows on the heels of a 2.5% leap year-over-year in April.
In other words, prices are going up. That’s not good news for people who buy stuff.
Pundits and talking heads call a rising CPI inflation. But as Peter Schiff explained in his podcast last week, people often confuse rising prices with inflation. In fact, the CPI merely measures one effect of inflation.
Remember, a lot of people think that inflation is what happens to prices. It’s not. Inflation is what happens to money. That’s where the word comes from. Inflate means to expand and prices don’t expand. Prices go up, prices go down. What expands? The money supply. It expands during inflation, it contracts during deflation. A result of an expansion of the money supply inflation is that prices tend to rise.”
And of course, the Federal Reserve drastically expanded the money supply in the wake of the 2008 financial crisis.
In simplest terms, the continual climb in CPI means you pay more for less. The purchasing power of the dollar fell 2.93% in May from a year ago, the fastest drop since November 2011.
This graph shows the persistent downward trajectory of the value of a dollar.
The CPI excluding food and energy rose 2.24% from a year ago, after having already risen 2.14% in April.
Two or 3 percent may not sound like much, but those price increases really start to add up over time. In just five years, you’re looking at a 10% to 15% price increase – or a 10 to 15% debasement of your money.
And here’s the dirty little secret. Prices are going up even faster than the CPI indicates.
The government does all kinds of little accounting tricks to pushes the CPI number down. For example, the CPI for used cars actually fell 1.7% over the last year. In fact, the CPI for used vehicles is at the same level that it was in May 1995. In other words, the price of a used car today is theoretically same as it was more than two decades ago.
Now, do you really think a used car is cheaper today than it was 23 years ago? Of course not. An article in Wolf Street explains the number.