Is inflation worse than we think?

Last year we were told that inflation was in the 2% range.  Then in Feb. it was announced that inflation was 4.2% annually.  That is something like a doubling of the inflation rate.  4.2% inflation may not sound like much, unless you explain it’s dramatic impact on your purchasing power.  With 4.2% inflation, if you make$100,000 over 9 years, the purchasing power of your salary would drop to $70,000.  After 17 years your purchasing power would be cut in half.  In 30 years your purchasing power would drop by 70%.  Now that we have your attention, let’s look at some even worse news.

 

Inflation could be worse than 4.2%.  One commentator, John Williams,  thinks the rate is actually in the 12%-13%. Another way to analyze inflation is to chart its effects on hard assets such as gold.  Over the last eight years, the price of gold has risen 225%.  Using this measurement, inflation appears to be closer to 6% than 4%.

HT: Wall Street Journal, David Ranson, Feb. 27, 2008