Fed’s Losing Deflation And Economic Fight

The finger has been pointed numerous times at the Federal Reserve for laying the foundation for inflation through dollar debasing, and maybe the Fed’s objective is to inflate the stock market, and, as a consequence, improve consumer sentiment and combat the ongoing housing deflation. If only the constant inflationary predictions would materialize, the Fed would be pleased, but reality states that despite the cries, inflation is not happening in the real world. What is happening is an income contraction, and when individuals have less money to spend, prices appear relatively elevated, and eventually pricing will follow the buyer’s demand. Inflation cannot occur if there’s less money and, more importantly, a consumer unwillingness to create demand that outstrips supply.

Yes, gasoline is around $4 as it was in 2008, but one gallon of milk is not $4 as it was in 2008. It’s $2.50. In addition, the consumer’s shift to store-brands is well documented, and as an example of deflationary pressure, a store-branded loaf of bread from Kroger (KR) costs $1.39 compared with a similar Nature’s Own loaf by Flower Foods (FLO) costing $3.00, and weighing 4 ounces less.

Grocery retailers’ store-brand products are expected to double their share of the global packaged food market over the next 15 years to make up half the market.

Where store-brand products were expected to fade as we emerged from the recession, it didn’t quite pan out as pointed out by FoodProcessing.com, and as further indication of the changed American consumer.

As shoppers’ economic concerns eased somewhat in the wake of the recession, some industry observers predicted that store brands would give up their recent gains, or even decline as the economy rebounded. The expectation proved without foundation, however, and the return to some kind of pre-recession status quo eluded the national brands. To the contrary, store brands held onto the gains and even built on them.

In total outlets – comprised of U.S. supermarkets, drug stores and mass merchandisers, including Walmart (WMT) – store brand sales increased by nearly 2% while dollar share advanced by almost half a point to a new record level. Overall, sales were $88.5 billion, another all-time high, according to The Nielsen Co.

Thus the Fed is focused on preventing deflationary forces from taking hold, although the ongoing data establishes that the dreadful “D” word is alive and well. SP/Case-Shiller’s Housing Price Index <a

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