“Inflation” is a smoke screen.

Word Matters. When you call all consumer price increases inflation, you hide the real cause.

For years the news has include information about the Consumer Price Index (CPI) in its daily updates on the stock market and unemployment.

But some time in 2021 we stopped talking about the Consumer Price Index and started calling it inflation. Technically there is no foul here, the CPI is used to measure inflation, but they are not exactly the same, and the small differences matter.

In broad strokes, inflation is when there is more money than goods in an economy and therefore, the value of the money goes down, and the price of everything goes up. It is about the supply of money.

Consumer prices, on the other hand, are the product of many different factors including: the cost of labor, the cost of energy, supply of goods and demand of goods. When these things go up or down, the CPI changes.

If the media tells us inflation is making the cost of our Christmas cranberry sauce go up, we blame the government. If the media simple tells us that cranberry prices are up, we might blame flooded cranberry fields, or the pandemic stricken canning plant, or the lack of truck drivers to get it to stores.

Is it a coincidence that the language changed just as the new federal spending bills were up for a vote? Instead of looking to the real causes of changes in CPI, the word “inflation” automatically has us “afraid” of more government spending.

But shouldn’t we be afraid of more government spending? I can’t answer that, but I think you should know that government spending is not the cause of inflation.

The supply of money is controlled by the Federal Reserve Banks, which are run by an independent Board of Governors. Their job is to use two monetary tools to keep the economy running. They control the amount of money they lend to big institutions and they control the interest rate that they charge for that money.

Yes, the government can borrow more money from the Federal Reserve, but so do other banks and large corporations. This money may, or may not trickle down into the cash flow of the economy. Much of it goes directly into the stock market!

The amount of money lent out by the Federal Reserve in 2020 (under Trump, btw) was unprecedented. Interest rates were at near zero in an effort to shore up business struggling from pandemic related challenges. Economists worried that this would trigger inflation, but it didn’t.

Similar amounts of money flowed from the Federal Reserve in 2021 and prices also began to creep up in 2021. Could this be the long predicted inflation from last year? Economists, like fortune tellers and weathermen, take every opportunity to prove they were right about something, so this looked like a good time to pull out the inflation predictions.

At the same time, government spending moved from billions to trillions catching up with the $20 trillion GDP. Meanwhile people were getting used to the idea of direct payments to citizens, instead of waiting for corporate bailouts to trickle down. In 2020 these direct payments kept the economy going, but Trickle Down zealots wouldn’t want people to get used to that. Inflation seemed like a good bogeyman.

Thus, changing the conversation from Consumer Price Index to Inflation served quite a few political purposes.

But does it serve the American people?

What is really going on with prices?

We know that supply and demand of goods is playing a key role in price increases. If we couldn’t wrap our heads around the intricacies of inflation, we were bombarded with stories about supply chain problems. While the media never seemed to put two and two together, it is not difficult to see the relationship between decreased supply and increased demand creating higher prices.

But there is an even more important story hiding behind the smokescreen of “inflation”. While consumer prices have gone up, so have corporate profits and stock market levels. Please take just a moment to think about this.

You are being told that prices are going up because of some vague government controlled thing called inflation. But at the same time that you are paying more for your breakfast cereal, the company that makes it is profiting more. The companies are simply taking advantage of all the bad news to charge more for their products, make more profit off of those products, and then cover it up as “inflation.”

Don’t believe me? You think there must be some other reason for 200% profit increases and record stock market highs? One last thing you should know, while consumer prices went up by 7%, the Producer Price Index has risen by one percent, give or take. Where is that extra 6%? (oops- the PPI was negative in December- does that mean CPI went down to 0? No? Why not?)

As the media on the Left and the Right stokes your emotions over inflation, take some time to think it through. How do you declare your freedom from corporate price gouging? It isn’t as easy as complaining about government spending.