Tuesday, April 19, 2005

the 'core' rate of inflation?

When I read in the paper that there has been .7 percent inflation in March, but only .1 percent in the ‘core’ rate, it makes me laugh. And when the business writer then declares that inflation is not a problem I am stunned.

They seem to think that the core of the economy is the price of cars, shampoo, cruise ship tours, etc. Not electricity, transportation fuels, and food. As if these were things we purchase if we have a little cash left over at the end of the month. This is completely backwards! The core of ANY economy is it’s energy base. The energy we consume makes everything else possible. For example: suppose we heated and cooked with wood, and used horses to get around? Then the economic activity we could generate would be limited to the amount of wood and hay we had. Oil has been so plentiful for so long, and it is such a concentrated and easily storable and transportable energy source, that we have forgotten that energy is the single and all-important limit to growth. Energy price inflation will be relentless and unstoppable soon, no matter how high governments push up interest rates.

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