Solving the Inflation Mystery


I've often wondered why inflation is so clearly rampaging well beyond levels reported by the federal government. Case in point: On a fairly regular basis, I buy 10-pound bags of carrots at my local Harris Teeter grocery store. When I started buying them two summers ago, a 10-pound bag was retailing for $3.99. It is now selling for $5.99.

Everyone has a similar story.

I've racked my brain trying to reconcile Labor Department reports of inflation running in the 2 to 3 percent range, while watching as housing, food, clothing, and transportation costs rise at significantly higher rates.

Here's one possible explanation I recently unearthed, a bit late, I admit. In January 2005, Bear Stearns issued a report on America's growing underground labor force. It said in the relevant part:

The growing extralegal system in the United States has distorted economic statistics and government budget projections. The stealth labor force has enhanced many of the economic releases that investors follow closely. Payroll numbers understate true job growth, and inflation has been artificially dampened by this seemingly endless supply of low-wage workers.

The large infusion of the imported labor supply has reduced average annual earnings by approximately 4 to 6 percent. Real-estate prices have been boosted by the foreign population infusion.

In other words, illegal immigration and the underground, cash economy it creates artificially dampen inflation rates, boost real-estate inflation, and reduce the wages of the average American. Wow, that's blockbuster news, although that angle of the story was fairly buried when the report came out two years ago. Instead, the media focused on the headline that stated there are some 20 million illegal immigrants living in America, rather than the usually reported 10 million or so.