Cheap imports won't drive down prices on US consumer goods -- at least as long as the Fed continues to print more and more money at historically high volumes.
The money (M2) supply is growing at the fastest rate in 20 years. Between January 1990 and January 2000, it grew from $3,163 billion to $4,633.3 billion. Between 2000 and July 2012, it more than doubled to an unprecedented $9,992.7 billion.
According to an analysis by the American Institute for Economic Research (AIER), this rate of growth in the money supply is the major contributor to consumer prices. "With a huge wall of money waiting to flood the economy, the U.S. needs to find its own measures to control inflation," Steven Cunningham, AIER Director of Research and Education, noted in a report. "The U.S. can't look to cheap import prices to control domestic inflation."
AIER, a Great Barrington, Mass.-based independent think tank, based its analysis on data collected by the Bureau of Labor Statistics since December of 2003. It found:
- Chinese Imports: The Consumer Price Index (CPI) declined even as the cost of Chinese imports increased. Each 1% increase in the cost of Chinese imports, AIER economists found, was accompanied by a 0.14% drop in the CPI.
- Canadian Imports: Canada is the United States' largest trading partner. Price increases of Canadian goods had an almost negligible impact on the CPI, with each 1% increase of Canadian imports accompanied by a 0.007% increase in the CPI.
- Latin American Imports: Each 1% increase in the cost of Latin American imports, meanwhile, was accompanied by a very modest 0.04% increase in the CPI.
- European Imports: Each 1% increase in the cost of European imports, the analysis found, resulted in a 0.11% increase in the CPI.
- Oil Imports: Even the price of petroleum imports appeared to have less impact than people assume, with each 1% increase in the price of petroleum-related imports resulting in a mere 0.02% increase in the CPI.
Cunningham reported that increases in the money supply, which more than doubled between 2000 and 2012, have a greater impact on prices. In fact, the AIER analysis found that a 1% increase in the growth rate of the money supply was followed almost immediately by a 0.19% increase in the CPI.
What do you think? Is the bloated money supply the biggest contributor to consumer prices? Can we accurately call increases in M2 a significant contributor to inflation?