From The Daily Bell via ZeroHedge, August 10:
Once upon a time... 1% inflation was a major emergency
In the year 1202 in the town of Albi in southern France, the local market price for a measure of wheat was 34 grams of silver.
Decades later in the year 1290, the price of wheat was exactly the same: 34 grams of silver.
And even centuries after that, in the year 1527, the price of wheat in Albi, France was little changed at 35 grams of silver.
Price stability was actually quite common in the medieval era; of course there would be short-term price fluctuations due to war, weather, or other anomalies. But over the long run prices tended to stay the same…
… unless the government got involved and screwed everything up.
And that’s exactly what happened across nearly the entire European continent in the late Middle Ages.
Starting sometime between the late 1400s and mid 1500s, prices in Europe began to rise; these weren’t the ‘normal’ short-term price fluctuations, but rather a sustained, long-term inflationary rise in prices.
Between 1500 and 1600, for example, the price of wheat rose 200% in France. And it rose 300% in Germany.
Eggs cost less than 1 penny per dozen in England in the year 1500. By 1570 the same quantity cost more than 4 pence.
There were plenty of reasons for this inflation, ranging from the Spanish Empire flooding the continent with gold and silver it had mined from Latin America, to Henry VIII’s ‘Great Debasement’ of English currency.
But the larger point is that this roughly century-long period of inflation was so significant that modern historians even have a name for it-- “The Price Revolution”.
Here’s what’s remarkable, though. On an annualized basis, inflation during the Price Revolution only averaged about 1% to 1.5% per year.
That’s right. Even if inflation is just 1% per year, prices will nearly triple after a century.
And that’s the amazing part-- a mere century of 1% to 1.5% annual price increases was considered a huge deal back then... and historically significant.
Yet in our modern world we’ve been led to believe that 2% inflation is ‘normal’.
Moreover, inflation has been surging all over the world. In Germany, inflation hit 3.8% last month, the highest level in decades. Inflation in Australia and New Zealand has also risen to their highest levels in at least a decade.
Brazil, Russia, South Africa, Canada, etc. all show inflation rates at multi-year, if not multi-decade highs.
Yet most governments and central banks have been conspicuously dismissive of their rising inflation figures, using words like ‘transient’ to insist that prices will eventually moderate.
Inflation in the United States is currently 5.4%-- and just like most of the world, that’s the highest level in years.
Tomorrow the government will announce new inflation numbers; and because inflation is such a hot topic right now, the entire world of finance is salivating in anticipation of tomorrow’s inflation report.
And investors are placing their bets whether or not inflation has increased or decreased as if it’s Fight Night in Las Vegas.
But ultimately tomorrow’s numbers don’t really matter.
Inflation is not a passing fad that’s here one day and gone the next. Like the Price Revolution in the late Middle Ages, inflation is a long-term phenomenon. Some months it will be higher, some months it will be lower. Some years it will be higher, some years it will be lower.
But over the long-term, inflation will continue driving prices higher… and making people less prosperous.
Let’s look back five years ago to illustrate.
In 2016, the median home price in the US was $306,000. And the average national 30-year mortgage rate was 3.5%.
So with a 20% down payment, anyone buying a median-priced home in the US would have had a monthly principal & interest payment of $1,096.53 back in 2016.
Today the median home price is just shy of $375,000, and the national average mortgage rate is 3.21%. That makes a 30-year mortgage payment on today’s median-priced home $1,637.93.
That’s a 49% increase in the mortgage payment for a median-priced home between 2016 and 2021-- and that doesn’t factor in the price increases from related costs like insurance, home owner association dues, and property taxes.
(This 49% increase over five years works out to be an average 8.3% annualized increase-- FAR higher than the 2% that we’ve been promised.)
What’s more, the median wage in 2016 (according to US Labor Department data) was $3,588 per month. So the mortgage payment back then would have been about 30.5% of monthly income.
Today’s median wage is $4,290 per month… which means that mortgage costs have risen to 38.1% of monthly income.....
....MUCH MORE
Always remember, the price increases may be transient—actually they must be or we off into the maths of infinity which make my head hurt—the inflation may be transient but the loss of buying power is permanent.
