Kids Understand Price Inflation Is Bad; Where Are the Adults?

By Mike Maharrey, Money Metals Exchange

If you listen to politicians and pundits, you might think price inflation isn’t so bad.

If you have to buy stuff out there in the in the real world, you know better.

Heck, price inflation is so bad, even kids realize something is wrong.

A video of a young girl reacting after she tried to buy “just two ice creams with two chewing gums in it” tells you everything you need to know about price inflation.

The young lady informs us, the ice cream costs “nine bloody pounds!”

She’s having none of it.

And to add insult to injury, the ice cream man won’t take cash.

“He only does bloody card!”

She sums up the entire situation

“Bloody hell!”   

We feel your pain, young lady. We feel your pain!

She certainly gets it. But one has to wonder – where are the adults?

Some Things to Keep in Mind When It Comes to Price Inflation

It is true that price inflation has cooled from its peak in June 2022, but that doesn’t mean the inflation dragon is dead. And it doesn’t mean prices are going down. They are still going up. They’re just not going up as quickly as they were a couple of years ago.

How much have prices really increased? 

A TikTocker recently reordered the exact same basket of groceries he bought online from Walmart. The basket cost him $127 in 2022. The same order cost $414 today. That’s a 226 percent increase. 

As the young lady in the video said, “Bloody ‘el!”

And prices will keep increasing because that’s the policy!

It’s not that government officials and central bankers want price inflation to go away. They just want it low enough that you don’t notice. The goal is to increase prices by 2 percent every year.

Price inflation doesn’t help you at all, but it helps government. The ability to increase the money supply makes excessive borrowing and spending possible. If we lived in a world with sound money and no central bank tinkering with interest rates and printing money, government would be much smaller and much less involved in the minutia of your life.

And that leads to the second thing you need to remember about inflation. The promise of rate cuts in the fall doesn’t mean inflation is dead and buried. It means the Federal Reserve is surrendering to inflation and is about to create more of it.

This becomes clear when you understand the correct definitions of inflation.

When government officials and pundits on TV talk about “inflation,” they almost always mean price inflation. This is what the CPI attempts to measure – how much prices have generally gone up in the economy. When you hear Federal Reserve Chairman Jerome Powell or some other government official talk about “cooling inflation,” they’re simply saying that prices are not rising as fast as measured by the CPI.

But historically, inflation didn’t mean “rising prices.” Inflation was defined more precisely as an increase in the amount of money and credit in the economy, or more succinctly, an expansion in the money supply.

Rising consumer prices is one of the effects of this monetary inflation.

Economist Henry Hazlitt explained it this way in “Inflation in One Page:“

“Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices.

“Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.” [Emphasis added]

So, when the Fed people say they beat inflation and now they can ease monetary policy, they really mean they’re going to start inflating the money supply again.

In other words, they’re going right back to creating inflation again.

This “victory” over inflation is really a surrender.

So don’t be fooled into thinking prices are about to come down. They aren’t. In fact, they’ll keep going up. And in all likelihood, they’re going to start going up faster again when the Fed begins pumping more money into the economy with rate cuts.

So, you may want to think about preserving your wealth with an inflation hedge.