Oct 7 2010 11:09AM

One thing that puzzles many people is the fact that all the conditions for inflation seem to be there. They are printing a lot of dollars, but inflation doesn’t seem to be taking off, though gold and silver are acting as though it is. But gold and silver are right, inflation is taking off.

First, let me define inflation. To the economist, inflation is not rising prices any more than wet sidewalks are rainstorms. Inflation is an increase in the supply of money. It should really be called dilution because it dilutes the value of existing dollars.

In fact, a more proper term would be “monetary inflation.” Monetary inflation is currently raging as the Federal Reserve is printing more and more money, and gold and silver are responding.

Price inflation is another matter indeed. Price inflation is the end result and trails monetary inflation. Monetary inflation is now rampant. Gold and silver, being smarter than you and me, are reflecting that by the increase in price and the big rallies we are seeing now. So inflation is here.

But what about price inflation? Price inflation has also already started. Look at the increase in commodity prices. How much longer do you think it will be before these higher wholesale costs filter down to the retail level?

For example, Agricultural Raw Materials are up 24%, The Mineral Index is up 25%, The Metals Price Index is up 26%, Coffee is up 45%, Barley is up 32%, Oranges are up 35%, Beef is up 23%, Pork is up 68%, Salmon is up 30%, Sugar is up 24%, Wool is up 30%, Cotton is up 40%, Palm oil is up 26%, Hides is up 25%, Rubber is up 62%, Iron Ore up 103%. Those are prices at the wholesale level.

As the price increases continue up the chain of production, is there any chance they will not cause price inflation? Do you think there is any chance at all that producers and retailers will not pass these costs onto consumers?

Let’s face facts. These cost increases will filter all the way through the system. Soon your paycheck will not stretch nearly as far. Monetary inflation is here. Price inflation is coming. Commodity price inflation is also here.

These are the reasons that gold and silver are soaring at the moment, as the price of gold keeps setting new highs. Silver has experienced extraordinary gains recently. The U.S. mint has raised their absolute pricing above spot on American silver eagles from $1.50 to $2.00.

Will Rogers, my favorite economist, said it best and I’ll say it again, “Invest in inflation, it’s the only thing that’s going up!”

By Howard Ruff
The Ruff Times

*****

Howard J. Ruff, the legendary author and financial advisor, has re-edited and re-issued his 1978 mega best seller, How to Prosper During the Coming Bad Years, still the biggest-selling financial book in history, with 2.6 million copies in print. He is founder and editor of The Ruff Times financial newsletter. The newsletter is much more comprehensive and deals with a broad spectrum of middle-class financial issues and includes an Investment Menu from which you can build your portfolio.The Ruff Times has served more than 600,000 subscribers – more than any financial-advisory newsletter in the world. You can get Howard’s current book, How to Prosper In the Age of Obamanomics free when you subscribe to The Ruff Times (www.rufftimes.com), or if you buy the book at your favorite bookstore, you can deduct $10 from the subscription price.