Thomas Tooke

Inflation Today

In Uncategorized on June 4, 2012 at 3:57 pm

I usually do not comment on current events. But since this charade goes on and on about inflation deflation, I want to post here the most visible proof that there is maybe deflation in certain areas of the economy, but there is one commodity, which was used in the XVII and part of XVIII century as a form of currency in Virginia ( , which was used as a form of currency in Weimar republic and during the second world war and which is still used in jails as a form of currency which is screaming inflation. I am talking about Tobacco and cigarettes. There is one index on Bloomberg which shows the price evolution of processed tobacco, the supply is very stable and demand is very stable. The price of Tobacco went up 28 times since 1959. In the first chart we have M1 and processed Tobacco, in the last we have the recent 15 years on Tobacco price. For anyone doubting about the effect of monetary expansion on the most  non substitutable commodity, with the most stable demand and supply, which the speculator can not distort since there are no future contracts here is the proof.

This is the most obvious indictment of the Fed. We have a 6.2% increase annually since 1959, fitting perfectly the M1 Index. This is a regime which steals constantly from the depositors (except during Volcker era, which naturally put back Gold in its box). Volcker was the only sound man in command in the last couple of decades.

So is the Processed tobacco commodity 28 times more valuable? Or is it the money which is dubious along with the ~economic growth~which has to be put into a completely different context?

Tobacco companies do not lower cigarette prices in deflation, but increase them easily in inflation environment, dividend paying gold if you will, with no risk of confiscation, and a nice put in case of real deflation (the dividend does not increase but it does not decrease either in true deflation, –I am actively looking for data series during 1873-1896 apologies–), but this is besides the point. The point was to prove inflation once and for all. Now another chart, we have British American Tobacco versus the Barbaric Relic in the last 10 years.

And finally to close the debate I think about whether we have inflation outside of the ~civilized economy~, here the price of processed Tobacco commodity in the last 15 years. No one can claim substitution (there is none), no one can claim large increase in demand, no one can claim supply disruption, no one can claim speculation because traders can not trade this index (yet). The Fed is the culprit.


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