Everything you need to know about inflation vs deflation

Is food or lumber or smartphones or soda any cheaper this year than five years ago?

I have been listening to pundits predict global deflation for years now. Ain’t ever happened. Deflation is a lie. Inflation continues apace in a fiat economy as always.

I have long argued — even back with Kudlow on CNBC a decade ago — that we as citizens who earn our money in dollars, should always want a strong dollar and even deflation. Deflation in prices at the store, at the vet, at the doctor’s office, for wireless, and so on would lead to a boom in Main Street as consumers find huge buying power with their currency. I wish that would happen. I’m still waiting. Lower energy prices are here, as oil’s down 50% in the last six months, but let’s be clear: Oil’s collapse has been a function of cyclical oversupply after a long boom/bubble period, and that such a drop in energy prices is decidedly not deflationary.

Inflation reduces the real value of money over time; conversely, deflation increases the real value of money — the currency of a national or regional economy. This allows one to buy more goods with the same amount of money over time. Deflation would be awesome for everybody but banks and government, which are dependent upon inflation and currency devaluation in order to make their huge debt balances easier to pay back.

The price of a Snickers bars at the bodega is up 50% since my 2010 article, “Revolution Investing: Apps, inflation and saving your portfolio“) when they cost me a buck even. Steaks, bread, used hi-fi stereo equipment, shoes, tuition, health care, movies and most other consumable items cost me more today than they did this time last year and a lot more than they did back in 2008, for example. Here’s another classic example of why I always say there is no deflation in the economy (and why I’d be happy as a consumer and a saver) if there were deflation anyway: “American wedding costs soar 16% in four years.”

What does “global deflation” mean if not lower prices at the grocery and retail store? I just don’t see any deflation.

All that said, over the last year, there’s been a divergence in the cost of food commodities vs. the steadily escalating cost of finished food at the grocery store and restaurants.

Here’s a one-year chart comparing the PowerShares DB Agriculture Fund ETF with wheat, corn, soybeans and sugar. Food prices at the grocery store are certainly up over the last year and so are beef and chicken prices, but not wheat, corn, sugar and soy.

Why is the $DBA down if most food prices are up? DBA description: “The index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities — corn, wheat, soy beans and sugar.”

Frankly, I’m thinking that the DBA is starting to look like its ready to bounce. I’m not sure I’d consider an ETF which promises to mirror food commodity prices to be a good long-term Revolution Investment, but I would expect that the DBA will be higher this time next year as the deflation boogie man fails to appear once again.

The other argument you’ll hear to justify having explicit inflationary goals from the Federal Reserve and our government is that stocks will get killed in a deflationary environment. They say that as if it’s a fact — but what credibility do you give the Fed and our government as stock-market analysts anyway?

Let’s debate if you see inflation or deflation in our economy. I see inflation, not deflation. But I see most pundits and politicians and Fed bureaucrats keep saying they have to stop deflation from getting any worse. Please give us your opinion: Which trend do you see every day, inflation or deflation? Post your thoughts in a Scuttle on Scutify with the hashtag #deflation and let us know.