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// -- MODERATOR COMMENT -- //

This comment was taken directly from this past Sunday's Barron's newspaper, a Dow Jones publication. "Despite the market's rockiness, the bulls believe that the big picture hasn't changed. They still see a strong economy, low inflation, healthy corporate earnings, and improvements in productivity"

Low inflation? Something tells me that they aren't looking at it the same way I am. We have touched on this topic more than once at the BCD. You can find a primer on just what economic folks refer to as inflation here...

Low inflation? I have even heard this referred to as no inflation. OPEC says that our gas tax is creating hirer inflation because we won't offer relief at the pumps. Greenspan continues to increase rates as the indexes that measure it continue to miss what is probably hiding in plain sight.

Low inflation? the folks who measure this kind of stuff actually have come out and said that the measurements used more than likely overstate it rather than the opposite. It is the higher process that get the blame for inflation when in fact economist say that we are buying something of better quality.

Back in those inflationary seventies, example after example made it's way across headlines and into consumer groups nationwide. The government was hounding businesses to keep their prices low to compete with an ever increasing competitive product from overseas. The pressure on prices was also putting pressure on profits. And it was decided that one of the easiest ways to deal with this "squeeze" was to degrade the product while leaving the price intact. This effected everything from fragrances (with less fragrance) to candy bars (with less nuts). This gave rise to the service contract on big ticket items because it was deemed that some guarantee accompany a product's performance.

But it's the nineties and we wonder if things have changed, and looking around tells us that it hasn't by much. Imports still keep prices in check and the "fear" of inflation has kept companies from raising prices. This has produced a revival of Gresham's Law of Goods and Services: Items of lesser quality will likely drive higher quality goods and alternatives from the marketplace.

There is less in jars and cans than previously with the same price attached to the product. Homes come pre-done (precut, prefabricated and prefinished) and it is generally agreed that the quality of these homes is a good deal different than homes of only ten years ago. We spend less time with doctors and their is growing concern that hospitals cut corners! Airline complaints have risen 136% while passengers increased only 3%. Sure, airline prices have stayed down, but what corners has the industry cut to do it. And don't you just love the phone calls that start with, "press one if... press two if... hold for the operator."

This is inflation in the most invisible of ways. Could it be creeping into your life without anyone measuring the effect of it? If it is we would like to hear about it. Send us you thoughts and we will post the best, preserving your confidentiality in the process.

Your Moderator,

Paul Petillo