Your wazoo is getting cored

I don’t track Spam prices like I track 87 octane prices. One is an oily, industrially-produced, foul-smelling substance that causes gross disfigurement and eventual death if ingested, and the other is used for combustion in automobiles.

Both are part of life on Saipan.

But neither is considered part of “core” inflation.

Indeed, food and fuel are considered too volatile, price-wise, to earn membership in “core” prices. Unfortunately, stomachs and gas tanks start growling when they’re empty, “core” or no core.

Saipan’s consumers are going to start getting an economic core right up their financial wazoos, since high fuel prices look like they’re finally overflowing into everything else. The U.S. measure of producer prices is up by an annualized rate of 10 percent; its consumer prices are up by an annualized 4 percent for “core” prices, and a whopping 8 percent for all prices.

For those who mind such details, my annual rates came from merely compounding the latest monthly rates. Cool, eh? That’s why chicks dig me.

Anyway, this is a global, not merely American, issue. Inflation, I mean, not chicks.

What can Saipan do about it? Nothing. Absolutely nothing. We don’t set, or even influence, oil prices, or gasoline prices, or food prices, or prices in general. We don’t issue currency or control the money supply, either. We’re helpless.

Saipan’s only economic tool here is basic economic hygiene. Keeping a healthy and competitive retail sector will keep prices as low as possible. By contrast, if Saipan’s cadre of anti-business boneheads start messing things up, it will just make the inflation bite worse.

* * * * *

Let’s talk inflation then. You’ll likely be hearing a lot about it.

High oil prices are causing “cost-push” inflation. Cost-push is simply the cascading increased scarcity through the chain of production, resulting, ultimately, in higher prices on store shelves.

It doesn’t take too much imagination to grasp how higher oil prices create higher gasoline pric
es, resulting in higher prices for running farms, operating fishing boats, running factories, and transporting goods to market. Higher costs for producers result in lower output. Lower output results in higher prices. Even the Village Idiot can grasp that fact.

The Village Idiot might want to go to journalism school, then, since you can count on the fact that most of the world press won’t understand the true nature of the inflation gig. Much of the financial press only understands demand-pull inflation, which is often linked to issues pertaining to money supply…which is, in turn, linked to issues pertaining to interest rates. (Here is the logic: Low interest rates inspire lots of loans, which create a lot of money, which floods consumer’s pockets with purchasing power, and they bid up prices. That’s demand-pull inflation.)

Cost-push inflation, and demand-pull inflation, are two entirely different things, with entirely different implications for monetary policy. I’m the only guy who will tell you that.

* * * * *

To the consumer, inflation is inflation. They don’t care what causes it.

You’ve seen the gasoline part of this issue at your local Shell and Mobil dealer.

But you have not seen the other parts of it… yet. Well, brace yourself. Be it Spam, gas, or anything else, consumers are in for some cost-push right up the old wazoo.