THIS DIMENSION

   
Of late it seems more people are talking about inflation and it's possibly putting in a Phoenix-like performance soon.

Economist Irwin Kellner writers on MarketWatch: "For the moment, it’s all good. After veering dangerously close to deflation, the rate of inflation has picked up and has now reached 2% — the fastest pace in 20 months. As recently as eight months ago, the 12-month change in consumer prices was only 1%."

As we've said many times before inflation is a function of who's measuring and how they measure it. And it's one of the safest bets you'll ever make in this dimension that bureaucrats measure to their advantage not yours.

So even though the numbers Kellner tosses around, 1% and 2%, are bogus, it's the underlying message or trend one needs to unriddle.  Kellner goes on to say "...the change in the index that the Fed prefers is only 1.6%." Whether he realizes it or otherwise, Kellner makes our point. 

Wouldn't it be nice to use the index we prefer, one the rest of us are forced to use daily, one that includes the price of food and energy?  Ain't going to happen. Though they won't admit it, keeping the threat of deflation front and center is actually an oblique form of inflation. 

In short, it's a verbal form of price controls. And even most economists laboring away in their dank and dark economic cellars know what happens when price controls get lifted. Wanting to recover lost ground is part of the human genetic code.

If you don't think so just ask all those yield-starved hordes out there or the COLA-dependent crowd. One of this administration's first acts during its first term was, among other things, freezing COLAs for two years.  Also, keep in mind the deflationary threat put the kibosh on any possibility for wage increases over that time.

"Meanwhile," Kellner writes, "let us not overlook what higher inflation has already done to workers, savers and seniors. After taking inflation into account, workers’ real wages fell 0.2% in May and are down 0.1% over the past 12 months. Seniors and others on fixed incomes have found that the buying power of the funds they already have is down as well."

Kellner's conclusion is he expects the Fed to continue doing what its been doing until unemployment numbers improve. And that's the whole point. It puts more and more pressure on these bureaucrats to get things just right.

So here's the second safest bet you can make in this dimension. They won't.  Adjust your investing accordingly.