Purchasing power

All currencies having the same fate.

Production cost up doesn’t translate to price up

All base metals (iron ore, copper, nickel etc) production cost are up but price.

All fossil fuel (crude, nat gas) production cost are up but price.

All precious metals (gold, silver, platinum etc) extraction cost are up but price.

Economics 101. The ultimate key for price increase is demand.

Thus when the construction cost goes up doesn’t means selling price must go single direction only, it can goes south too!

 

Update: Broad Money Supply Q3 2015

There is virtually no growth for M3 and -0.04 further shrinkage for M2. Without even looking at the CPI, price level for almost all goods and services have increased noticeably. Is it a signal for assets deflation?

Hidden inflation

CPI has no way to track this:

Inflation on housing price

Nowadays, inflation is defined as general increase in price or close similarity. Nevertheless, inflation more common definition was used to be an increase of money supply or equivalent wording. If you don’t believe, take out your grandfather dictionary, preferably before 1970s and look for yourself.

Nowadays, inflation is generally caused by (as teaches in economics class and text book) either cost push or demand pull with the magic word of ‘velocity’ of money flow. But have you ever wonder i.e labor could be a cost factor for a producer and at the same time a price within the labor market. So irony, it’s as if I am a male and female at the same time?!?!

Which one is correct?

Let’s say in a fictitious mini house auction with 5 potential bidders each with 100,000 and there were 5 foreclosure houses. The rule is each one can only bid for 1 house. The end result is pretty straightforward, the closing price for each house will be 100,000.

Now, let’s change one thing, each bidders now possess 200,000 instead. Everything remains equal, ceritas-paribus. What will be the closing price? Simple, it is 200,000.

As explained by Henry Hazlitt:

A price is an exchange ratio between a dollar and a unit of goods. When people have more dollars, they value each dollar less. Goods then rise in price, not because goods are scarcer than before, but because dollars are more abundant, and thus less valued.