The Federal Reserve multiplied the adjusted monetary base nearly five-fold from 2008 to 2014.  Some predicted high consumer price inflation as a result, which has yet to arrive.  There has been mild price inflation in consumer goods, but this has been typical for at least 70 years.

There has surely been price inflation in some assets, particularly in stocks.  There has also been significant price increases in certain industries where the government is heavily involved.  The most obvious is medical care and the so-called insurance system.  But the dramatic rise in medical care and insurance costs is more a result of regulations than of monetary inflation.

The most significant reason we have not seen a huge spike in consumer prices is because much of the newly created money from the Fed went into the commercial banks as excess reserves.  Since this money was not being lent out through the fractional reserve process, it helped keep a lid on price inflation.

In addition, the demand for money has stayed relatively high.  In other words, velocity has been relatively low.  Since people do not perceive price inflation as a problem now or in the near future, they do not mind holding some money, even if it loses 1 to 2 percent in value each year.  The recession and financial crisis from 2008 led people to be a little more conservative with their money and to spend and borrow a little less, at least at the margin.  To go along with this, it also helps that the U.S. dollar has maintained its status as the world’s reserve currency.  When dollars exit the United States and go to foreign countries in the form of cash, this does help to keep price inflation lower than it otherwise would have been.

It is easy to see how people could have wrongly predicted double-digit price inflation.  The last 10 years have been unprecedented in a lot of ways, including the massive piling of excess reserves by banks.  Still, the lack of consumer price inflation does not take away the fact that the easy money from the Fed misallocated resources and redistributed wealth.  In the long run, this hurts our living standards.

The big problem I have is that there are some people – especially libertarians – who keep predicting hyperinflation or some such thing.  Even worse, they say that consumer price inflation is much higher than what is being reported.

To be sure, the government’s statistics probably underestimate the rise in consumer prices, but we should also not delude ourselves that the CPI numbers are so far off.

There are some libertarians, along with others, who like to cite the work of John Williams at Shadow Government Statistics.  He likes to make outrageous claims that unemployment is currently well over 20%, and that price inflation is actually 10% or more.  Every year, he says the same thing, regardless of what the facts actually show.

If you doubt me on this, I just need to point to one thing.  This one thing is also the best indicator that I have found to know when significant consumer price inflation has arrived.

I am talking about dollar stores.  I am specifically talking about dollar stores in which every item in the store sells for one dollar or less.  It is actually astounding how many things you can find in one of these stores that only costs a dollar.

They say there are some things you should never buy used (for example, condoms and parachutes).  There are some things I would likely never buy in a dollar store either.  But if a particular product is being sold in there, then somebody must be buying it.  Personally, I occasionally shop in a dollar store.  I have bought kitchen scissors, plastic utensils, holiday decorations, and a number of other things.

The point is, all of these things are still selling for a dollar.  Sure, maybe the package sizes for some of the products (particularly food) have gone down over the years, but the stores are still making something of a profit on these items.  They probably aren’t using loss leaders, because there are no products selling for more than a dollar.  The profit margins are very thin on all of the products.

If you look at the 1980-based chart of consumer price inflation on John Williams’ site, he is basically saying that we have had around 10% annual price inflation over the last decade or more.  If prices were really rising at 10% per year, then prices would be doubling every 7 to 8 years.  That right there should tell you his numbers are junk.

It is true that prices are higher than they otherwise would have been without Federal Reserve monetary inflation.  Even in areas of electronics that have seen nominal decreases, these products would be even cheaper if not for the Fed’s monetary inflation.

But overall, the dollar stores are still in business.  They have not had to become $2 stores.  And until these dollar stores go bankrupt or are forced to breach the one dollar barrier, then all this talk about double-digit price inflation is nonsense.  It’s not to say it may not happen eventually, but there is no way that we are anywhere close to that now.

The dollar store is my indicator for significant price inflation.  Gold will rise before these stores go out of business or are forced to break the dollar barrier.  So I’m not saying you should make your financial plans based on the viability of the dollar stores.  But as long as the dollar stores keep going as is, then you can safely ignore the hype put out by John Williams and others about high price inflation.