Inflation - this time its different

Robert Samuelson’s article “Inflation won’t happen this time round” [p13, 30th Oct-05] gives me little comfort based on his reasoning. He asserts correctly that oil prices in themselves don’t cause inflation, but ignores the credit creation that has sparked the recent internet, equity, property booms and commodity booms. Yes the global economy is more competitive, but oil costs are inherent in every aspect of GDP, allowing business to very easily pass on costs, whether those costs are incurred in the US or China. Productivity has been strong over the 1990s, but has shown signs of abating, whilst wage growth pressures are building and corporate profit margins are being squeezed. Whilst Samuelson describes the rise of inflation in the 1970s, he gives little regard to the current economic conditions. US monetary policy is still easy, mortgage rates have yet to respond to Fed tightening (11 consecutive 25bp increases), and the US is running record deficits at a time of high national debt and low tax receipts – potentially squeezing households from all sides. Japanese & Asian (China, Taiwan, Korea) monetary authorities are equally to blame for financing the debt, and for preserving their mercantilist policies. Either way we will experience inflation or gross over-capacity. Will the Fed tolerate all this? Its too late for them to avert crisis. Isn’t it about time the media developed some analytical skills and stopped writing articles scripted by the Fed? We were feed news that oil would never breach $US40/bbl. We are told inflation is the sole measure of monetary health. Expect headline inflation to lead core inflation – just as it did in the 1970s. Expect gold to be the last bubble before the undertaker moves in.