Tuesday, December 2, 2008

Consumer Price Index & Inflation

There are basically two kinds of goods. Those needed by the consumer - food, clothes, leisure, health, etc. and those needed by the producer - factories, companies, brands, patents, buildings and assets... And there is some stuff used by both - semi durable goods used for production, like cars, computers, etc

Most central banks act when they see a rise in the level of Consumer Good prices (CPI), they also generally act against any rise in the general wage level as it may lead to inflation and further increases in the CPI.

But rarely do Central banks act when they see a rise in the general level of producing good prices, and it is clear that all asset prices have risen recently, including housing and stocks.

They also do not act to buffer a general rise in company profit levels, although it usually leads to further increases in producing good prices.

Why are central banks and economists so happy when production good prices rise relative to consuming good prices ? Could it be that the political power resides with big business?

Of course. It also goes some way to explain why the bail out of big business is the "preferred" path is addressing the current financial crisis.

Pity really, as putting money into real wages and investing in broad scale community resources and infrastructure would more rapidly fill the debt bubble with real economic demand and big business would be better off in the long term.

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