Archive for the ‘CPI’ Category

The Inflation Straw Man

Monday, March 2nd, 2015

 “When real interest rates start to move up, that’s when the crisis could hit.”

                                                  Alan Greenspan

So the Federal Reserve Board spent six years and boosted its bond portfolio to $4 trillion in an effort to boost the rate of inflation to 2%.

How did that go?  Not so well.

This week, the U.S. Bureau of Labor Statistics (BLS) reported that the Consumer Price Index for All Urban Consumers (CPI-U) declined 0.7% in January on a seasonally adjusted basis.  It was the third consecutive month of decline; over the past year, the “all-items index” decreased 0.1% before seasonal adjustment. CPI

In other words, the U.S. has joined Europe and is in deflation mode.  It’s the first time the CPI hit negative territory for the year since the beginning of the financial crisis in 2009.  Imagine how low prices would be if the Fed didn’t buy all those bonds!

That dropping oil prices caused U.S. deflation underscores the foolishness of the Fed fantasy about a 2% inflation rate.

As David Stockman’s Contra Corner put it, “the CPI measure of inflation is so distorted by imputations, geometric means, hedonic adjustments and numerous other artifices, that targeting to 2% versus 1% or even a zero rate of short-term measured consumer price inflation is a completely arbitrary, unreliable and unachievable undertaking. Yet, (Fed Chair Janet) Yellen’s latest exercise in monetary pettifoggery is apparently driven by just that purpose … ”

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Inflation Is Too Low? Tell That To American Consumers.

Monday, December 8th, 2014

We’ve explained in the past how the federal government puts a yellow smiley face on its unemployment figures by excluding Americans who have given up looking for work and including part-time workers as if they are fully employed.

Similarly, the Congressional Budget Office estimates the cost of a tax increase or tax reduction under the assumption that the increase will have no impact on taxpayer behavior – so tax cuts have no economic benefit and tax increases produce revenue without harming the economy.CPI

So we shouldn’t be surprised that the Consumer Price Index (CPI), which measures inflation, rigs the numbers by excluding increases in the cost of food and energy.

The Federal Reserve Board’s $3.5 trillion in bond buying failed to boost inflation to the target rate of 2%, but the Fed could have accomplished its goal without buying a single bond.  All it had to do was change the method used for calculating CPI.

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