Why I Keep Charging You More For Milk

We’ve raised the price of milk again. In 2009, you could buy 4 liters for $3.99. Today it will cost you $5.49 – a 38% increase. Even so, we sell it for far less than it costs. If you do your own grocery shopping, chances are you’ve noticed the grocery bill climb steadily higher, too.

Why is this?

Prices increases are due to an increase in consumer demand, a decrease in the available supply, or an increase in the supply of money. An increase in the supply of money results in more dollars chasing around relatively fewer goods. This raises prices. An Austrian economist calls rising prices a symptom of inflation, which is defined as an increase in the money supply. A Keynesian economist calls rising prices inflation. He would prefer that the cause go unnoticed.

Despite positioning itself as a vanguard against inflation in this country (“We work to preserve the value of money by keeping inflation low and stable.”), the Bank of Canada has purposely aimed to devalue the dollar by 2% each year since 1991. From its website:

Inflation targeting has been the cornerstone of monetary policy in Canada since 1991.

…(T)he focus in the 1995 agreement shifted towards keeping it low, stable and predictable over the medium term, at an annual rate of 2 per cent—the midpoint of a control range of 1 to 3 per cent.

The inflation-control target has been extended five times since 1991—in 1993 (for the period 1995-98), 1998, 2001, 2006, and 2011 to the end of 2016.

Inflation occurs when money is created out of thin air by a central bank. If you or I did this it would be called counterfeiting. It is. In addition, inflation benefits those who spend the newly created money before it has lost its purchasing power (think: politicians, bankers, etc.) at the expense of savers and those on fixed incomes (think: grandma and grandpa) who pay higher prices. It allows governments to spend endlessly, racking up enormous deficits which are piled on  top of mountains of debt. It enables war. It also causes the business cycle, consisting of unsustainable malinvestment followed by the necessary bust.

Albert Bartlett, emeritus Professor of Physics at the University of Colorado at Boulder, said: “The greatest shortcoming of the human race is our inability to understand the exponential function.” Exponential annual growth of 2% is significant. Case in point: a basket of goods and services costing $100 in 1991 costs $147.20 today.

At least they can’t print gold. Yes, even if it isn’t backed by anything.

  • Subscribe via RSS
  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

  • Categories

  • Popular Posts

    Google Analytics Popular Posts Alert :
    Please check/recheck/enter your Google Analytics account details (username and password).
  • Archives