Perhaps finance guru Jim Rogers was correct when he said that central banks around the world are facing high levels of inflation. This, according to Rogers, would lead to the evisceration of the savings class. In the past 24 hours, several nations and experts have confirmed higher inflation for at least the short-term.
Although the Federal Reserve is one of the few central banks to announce that inflation is rather timid, officials and citizens in countries such as Mexico, Venezuela, Brazil, Uganda, Argentina and even Great Britain have to deal with the effects of inflating the money supply.
It was reported Wednesday that many Argentines are turning to gold in order to protect their wealth and savings from the double-digit inflation rates. The inflation rate in Argentina is 26 percent, while the money supply (pesos) has grown 38 percent and has devalued the peso by 12.9 percent.
Within the next year, Argentines are forecasting inflation to reach 33.5 percent, according to a report from the Finance Research Centre (FRC). Even though President Cristina Fernandez and her government would like to point out to official public statistics, the International Monetary Fund (IMF) and other financial experts say they are highly manipulated and have been discredited domestically and internationally.
The nation of Venezuela has had to experience the consequences of former President Hugo Chavez’s economic policies. One of the effects is inflation. For the past six years, Venezuela has posted an inflation rate of 20 percent. Xinhua reports that local economists see the inflation rate this year close to 27 percent.
There have been a variety of reasons as to why the inflation rate is so high and the bolivar has been debased: astronomical government spending, price controls, production quotas and tight restrictions on exchange rates.
“Every time it devaluates, a large amount of bolivars will be generated from nothing. And the government will have most of them. Then, the government will support their spending with the newly-generated cash. That ultimately leads to liquidity expansion,” said local economist Luis Zambrano.
Mexico inflation has been accelerating this year and is close to hitting the central bank’s forecast of four percent, according to a Dow Jones press release. The positive news is that the country maintained a strong peso and that is why the core inflation rate wasn’t as high as first projected.
In the first half of March, consumer prices rose 0.29 percent. However, the economy could face further long-term economic deficiencies as the central bank cut the overnight interest rate by 50 basis points to four percent.
Uganda residents will have to experience a higher cost of living and pay a lot more for goods and services, excluding food prices. The Bank of Uganda Deputy Governor Louis Kasekende said the core inflation rate was at five percent and could increase in the short-term – last year, the figure was at 15.4 percent, much higher than initially forecasted.
Annual consumer price inflation rose to 2.8 percent and hit a nine-month high last month, according to official data figures from the Bank of England. These numbers include cost of living experiencing a bump, wages remaining stagnant and higher food prices.
Exiting central bank head Sir Mervyn King warned that inflation would remain stubbornly high for the next three years. The annual inflation raise is expected to be above two percent until 2016 and this will lead to higher energy prices and university tuition fees.
To the average person, this information could be disastrous. However, some members of the intellectual community suggest that industrialized nations should allow inflation to soar, especially those with high levels of debt.
“I feel increasingly that maybe there is a case for a certain amount of controlled inflation for industrialized countries,” the World Bank’s top economist Kaushik Basu told an audience at the Center for Global Development in Washington, according to Reuters. “Inflation is a way to balance out some of your debts …. perhaps a targeted inflation of something like 4 percent for a couple of years and then inflation is pulled back.”
What do Austrian economists have to say about inflation?
“Everybody should be made to understand that the burden of high taxes and of making personal loans to the government are minor evils compared to the disastrous and inexorable consequences of inflation,” wrote Austrian economist Ludwig von Mises in “Economic Freedom and Interventionism.” “Not only for the sake of the national welfare, but for the sake of your own interests – whether you are rich or poor, employer or wage earner – you should do your best to arrest the further progress of inflation.”
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