More on the Real Inflation Rate . . .

by Little Miss Attila on April 13, 2011

which I’ve been hammering away at. Remember: a measurement that doesn’t take into account the cost of fuel and food is of little value to ordinary Americans. The CPI has been worthless for years.

Glenn and Smitty have a thing or two to say about this.

And here’s my first essay about inflation for RightNetwork, “The Most Regressive Tax of All.” And, from five days ago, “Inflation and the New Misery Index.”

{ 6 comments… read them below or add one }

ponce April 13, 2011 at 6:40 pm

The CPI wouldn’t have much value if we keep redefining it to satisfy partisan desires to make political rivals look bad, would it?


retriever April 13, 2011 at 7:14 pm

The CPI has been bogus for years, regardless of who has been in office. It’s just insanity to leave food and gas off the list. Regardless of one’s politics, it is harder and harder for ordinary people to get by.

Food prices are increased by some asinine and corrupt “greenie” policies like the ethanol boondoggle (which actually is worse for the environment, but benefits the producers, even if it destroys small engines and gives the strapped consumer 10% less mpg on their more expensive gasoline. It’s crazy to use food crops for fuel. It is increasing hunger in the Third World, increasing political unrest there, and the fuel produced needs a lot of fossil fuel to produce and isn’t ver efficient anyway. It’s also a problem that in the globalized economy people are used to buying the rock bottom cheapest products from 3000 miles or more away year round. This is fine when fuel costs are low and weather is good. But a hurricane or higher gas prices and suddenly your vegetables are wiped out or cost double.

The gas prices are increased as much by speculation as by political unrest or other excuses made by those profiting from our hardship as we have to pay for fuel to get to work.


Darrell April 14, 2011 at 1:03 am

Has the BLS removed food or energy prices in its official measure of inflation?
No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the “core” CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI.

Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners and Clerical Workers (CPI-W). Individual income tax parameters and Treasury Inflation-Protected Securities (TIPS) returns are based on the All Items CPI-U.


Daniel April 14, 2011 at 5:40 am

Just more FUD.

The causes of inflation are many and we should be cognizant of those that we cannot *control* such as natural phenomena, civil unrest and commodity hoarding. But the meme that food and oil should be ignored because they are not controlled by monetary policy is ignorant of the effect that a weak dollar will have on commodities in the international market.

The Fed has a history of reacting to inflation on a timely basis. I’m just praying now that they continue to do so regardless of the effect that such monetary policy will have on the 2012 elections.


Yu-Ain Gonnano April 15, 2011 at 6:35 am

The are not excluded from the “Core” CPI because they are not controlled by monetary policy. They are excluded because from a statistical standpoint, they act as outliers.

I just went onto the BLS website and pulled both the “Core”, “Energy”, and “Food” CPI Measures for year-over-year by month from 1968 forward. They averaged 4.4, 5.8, and 4.4 respectively over this time period. However, the standard deviation for each was 2.7, 10.9, and 3.2 respectively. The range (the difference between the Min and Max) was 13.0, 75.2, and 19.2.

There’s a case to be made that food should be blended into the “Core” number, but “Energy” is an animal all to itself and needs to be treated as such. Folding them together simply muddies the water in both directions. You would take different actions if prices across the board were going up 5% last year or if everything except Energy had fallen 2% but energy had risen 30% (not unheard of, btw) and thus averaged out to 5% or if everything else had risen 5% and energy had fallen 15% (also not unheard of) and had averaged out to +1%. (I don’t know what the proportion of the economy Energy makes up, so don’t fact-check-my-ass on the weighted averages, I fully admit I made them up for illustration purposes only)

Now I’m not saying that “Core” is all that should be reported, but there is value in isolating the stable from the unstable. They should be split out and reported side-by-side.


Yu-Ain Gonnano April 15, 2011 at 6:48 am

I actually, just looked at the All-In CPI. From March 09 to Oct 09 the All-In actually showed us going into a Deflationary period (-1% to -2%). Of course, this was almost completely driven by Energy prices falling by over 20% year-over-year.


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