Inflation is Out of Control



Mike Larson discusses the rise of inflation is happening nationally and globally. Mr. Larson takes a closer look at rising import prices along with consumer and wholesale inflation growth.

The government's policy of ignoring the dollar's decline is leading to astronomical increases in the cost of imported goods. In the month of May, import costs rose 2.3%, following a 2.4% rise in April and a 3% increase in March. But the year over year comparisons are even more astounding. Import prices surged 17.8% in May from the same month in 2007. That's the biggest rise the government has ever recorded, and it's been tracking the numbers for a quarter century. Obviously, oil is a major factor; petroleum import costs soared by 69%. But even excluding petroleum products, import prices are on the rise and not by a small amount.

As the cost of imported goods from China steadily climbs, U.S. consumers are paying higher prices in big-box retail stores. Another red flag is the cost of importing goods from China is on the upswing. Chinese imports climbed 0.6% in price in May. That pushed the annual gain to 4.6%, the most since the government began tracking such figures back in 2003. As all those Chinese goods on the shelves of Wal-Mart, Sears, and Target get more expensive, U.S. inflation pressures are going to keep on climbing.

Wholesale inflation is growing. Every month, new data is available on producer prices. These figures measure inflation at the wholesale, rather than retail, level. The latest data is not very good. The Producer Price Index (PPI) surged 1.4% in May alone. That was seven times the increase seen for April, and a greater gain than the 1% rise economists expected. Wholesale inflation is now running at a 7.2% year over year rate, just shy of a multi-decade high.

Also, goods at the intermediate stage of production (rather than the finished goods the main PPI tracks) are up 12.6% in price from a year ago. Crude goods are up 41.5%. Those are the worst readings going back to 1980 and 2003, respectively.

Consumer inflation is rising nationally and globally. With surging gas and food prices striking consumers, the effects of inflation are rapidly exasperating the U.S. mortgage crisis. Yet month after month, quarter after quarter, inflation rates have generally climbed. The Consumer Price Index (CPI) jumped 0.6% in May alone, a greater gain than was forecast. The increase was enough to push the year over year inflation rate to 4.2%; one of the highest CPI readings since the early 1990s.

"Moreover, inflation isn't just a huge threat here in the U.S. U.K. consumer inflation spiked 3.3% last month, an 11-year high; inflation in the 15-nation Eurozone region is up to 3.7%, a 16-year high; Australian prices jumped at a 4.4% rate in the first quarter, the most in almost 17 years; and Chinese inflation hit a 12-year high of 8.5% in April," Larson adds.

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About Mike Larson and Money and Markets

Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.





Inflation is Out of Control