We can control the prices of goods with our policy tools. We are devaluing the dollar by keeping rates low which in turn is driving inflation in other countries. Everything is denominated in dollars. Our products become cheaper. We devalue the dollar for this reason but usually always back fires. By raising rates we will strengthen the dollar and lower the price of gold. With a stronger dollar it will lessen the inflation in other parts of the world as well. But again we can't do this due to real estate.
what do you mean "we can't" ? the US and most european nations have grown soft. this thread as well as the rest of ET is full of we can't and if deflation should happen the end of western civilization is around the corner. if the Fed and congress cannot do the right thing perhaps we are headed for the dark ages again.
There is another reason they can't raise rates too much - the interest that the US Gov't is paying on its huge debt would increase, causing more deficits and more debt - a vicious cycle. Right now everyone in the world is still playing along in this game of musical chairs (buying US debt even with paltry yields) but all it will take is some catalyst and the music will stop. Once rates start rising it will be all over.
if they included food prices, we'd have even less inflation. i don't know about you guys, but i've noticed groceries are cheaper now than 2 years ago, and about the same as 5-6 years ago. 2-3 years ago, my supermarket sold filet mignon for $15.99/lb. now it's $13.99/lb (same quality cut). similarly, milk is cheaper. off the top of my head, i can't think of anything at the grocery store that's more expensive, in fact. maybe it's a regional thing?
Since QE2 was announced the dollar has rallied along side commodities. You want me to believe commodity inflation is a result of a weak dollar, but the market does not agree with your analysis. Is it not more likely that the inflation in the commodities sector is nothing more than the market finding a new equilibrium after adjusting the demand outlook? I can see how the correlation between QE2 and commodity inflation could give you the idea that QE2 is the cause. However, when you analyze the situation more closely you get a clearer picture. This inflation is demand oriented not dollar devaluation oriented. The charts back that story up. So as I said in the beginning, the FED should not focus their efforts on things they cannot change and quite frankly should not want to change. When did the market telling us it expects growth become a bad thing?
I can walk down the street and get a gallon of milk for $1.99 to $2.39 (it's usually discounted every other week). And no I don't live in a rural nowhere place, it's a major urban city. Have to wonder where on earth you are paying $6 a gallon. I'd argue that sometimes the anecdotal food inflation that is discussed has to be verified since it's not unheard of for some supermarkets to try and pass along costs, while their competitors might be offsetting those increases in other food items.
Utter nonsense. Do you honestly believe the demand outlook has increased with the major economies of Europe and the USA on their collective asses? Let's go with your theory and assume that China, India, Australia and some emerging markets in Asia have picked up some slack, I still see that as a wash when you balance it out with Europe and the US, plus any other economies wrecked since 2008. The concept that commodities are, at all times, demand driven is a fallacy in recent years. Alternative investment vehicles combined with all sorts of ETF's have put a stake thru the heart of that theory. Nowadays with interest rates parked near zero, investors are forced with a gun to their head to seek return either thru stocks or commodities or precious metals. Outflows from stocks for about 2/3rds of the past year suggest that money is flowing into metals and commodity funds. That's not to say its permanent, we saw all of this happen in 2006-08. Crude oil plunging from $147 to $38 in 6 months was proof positive of how much speculative flow found its way into commodities last time around. The wealth transfer from the real economy was devestating last time around and equally as devestating this time around.