Inflation Thoughts

I had a thought about inflation this morning. Nothing earth shattering, but it's about the global context.

How is it we have huge inflation and a rising dollar?

That shouldn't make any sense.

Per the official numbers, we've had around 8-9% inflation over the last year. If you follow John Williams of shadowstats.com he has inflation at 11 to 16% depending on which methodology you use.

So... that's bad. Cost of living is rising much faster than people are increasing their earnings. In short, people are getting poorer in real terms.

But at the same time, the USD is strengthening against every other fiat currency.

GBP getting weaker

EUR getting weaker

USD getting stronger against everything

Just looking at the EUR for a second, over the last year it went from 1.15 to 0.98. That's a decline of 15%. And the dollar on its own terms dropped somewhere between 8 and 16%.

This tells us that the EUR dropped 23 to 31% over the last year in purchasing power.

That is a stunning number for a group of advanced economies. Let's ballpark it at 25%. Someone's 100 EURs from 2021 only buys 75 EUR of goods and services now. So if that person's income didn't increase by at least 33% (because that's how reciprocals work) then they got poorer.

I'm the first to admit that I don't keep tabs on the details of European wages and markets. But I'm going to go out on a limb here and assume that most people did not get a 33% bump.

These are stunning numbers and really show how bad the global economy is in the wake of the covid insanity. It turns out just stopping all trade isn't particularly healthy.

Posted Using LeoFinance ^Beta