Inflation-CPI piece article

[greg]

By Peter Schiff:

The "core" CPI is actually of little value since about 40% of it is comprised of rent (either actual or owner-equivalent). In the current low interest rate environment, which has drawn in an ever-widening pool of home buyers, rents are being artificially suppressed. What’s more, the proliferation of adjustable rate mortgages and no down payment loans have temporally turned many renters into buyers; fully one third of first-time homebuyers are putting zero down! As a result, the national rental vacancy rate is at a 40 year high, and rents are under pressure. Therefore, the Fed's inflationary monetary policy is paradoxically helping contain rent increases which represent 40% of the "core" CPI, while causing housing prices themselves, which are not even included in the CPI, to soar. The more inflation the Fed creates, the lower the "core" CPI. How convenient.

http://www.kitco.com/ind/Schiff/may192006.html

I have nothing to saay.

[REWahoo]

The "hit and run" poster strikes again!

(Or maybe I should ask, "Who was that masked man?")

[astromeria]

After I read your snippet, Greg, I pictured Arte Johnson in his WWII soldier duds saying, "Very interesting <looks around through his spectacles with beady eyes>...I haf nothing to say."

Does anyone else remember Laugh-In? <You bet your bippy!> Or were you too stoned while watching it in college...or <gasp> high school? <Dan Rowan and Dick Martin laugh contagiously...wonder what became of them and the rest of the cast>

[brewer12345]

At least he didn't say "fiat currency" or start talking about gold, gold!, GOLD!!!

Greg, I largely agree simply because the concentration on "core" is foolish, IMO. *Excluding food & energy inflation just because it is inconvenient doesn't reduce the inflation consumers experience.

[wabmester]

Originally Posted by brewer12345

I largely agree simply because the concentration on "core" is foolish, IMO. *Excluding food & energy inflation just because it is inconvenient doesn't reduce the inflation consumers experience.

I hear this soooo often, and I simply don't get it.* * They don't exclude food/energy because they don't think they are important.* * They exclude them because they are volatile, and when energy inflation is persistent, it shows up in the core.* * They use the core simply because it wiggles around less and the change is more informative.* * Not because of some conspiracy against consumers.

[brewer12345]

Originally Posted by wab

I hear this soooo often, and I simply don't get it.* * They don't exclude food/energy because they don't think they are important.* * They exclude them because they are volatile, and when energy inflation is persistent, it shows up in the core.* * They use the core simply because it wiggles around less and the change is more informative.* * Not because of some conspiracy against consumers.

Did you see me use the word conspiracy?

I think using the core is dumb. By the time inflation has wormed its way into the "core" inflationary expectations are already taking hold and the Fed is already behind the 8-ball. Not becauseI think there is some kind of conspiracy.

[wabmester]

Sorry, I automatically assume that any CPI rant is based on some anti-consumer government conspiracy. The words "CPI" and "consumer" immediately trigger a cascade of neural activity that sends my fingers flying.

But, I'm not sure what you'd have them use instead of core inflation. Are you suggesting that they should make policy around volatile metrics?

[cute fuzzy bunny]

Originally Posted by wab

I hear this soooo often, and I simply don't get it. They don't exclude food/energy because they don't think they are important. They exclude them because they are volatile, and when energy inflation is persistent, it shows up in the core. They use the core simply because it wiggles around less and the change is more informative. Not because of some conspiracy against consumers.

But we all still have to pay for food and energy.

I'm pretty sure theres less separation of core CPI and food/energy when food/energy are deflating.

It doesnt matter if stuff is displeasingly volatile, or is of better quality, or has higher availability...you still have to pay for it.

Not incorporating the higher out of pocket cost means that true cost increases are not being accommodated, for similar purchases.

That the volatility is unreasonable, the quality is higher or the availability is better is small comfort to someone pulling out an empty pocket and having to settle for going without or buying something cheaper to make due.

Originally Posted by wab

But, I'm not sure what you'd have them use instead of core inflation. Are you suggesting that they should make policy around volatile metrics?

I'd have them measure and represent CPI as the actual change in prices that consumers pay for products and services over the periods of time that CPI is supposed to measure. That includes housing, gasoline, electricity, natural gas, etc.

[HFWR]

Core CPI probably gives a better reading for inflation's trend, but the other numbers are there, i.e. food and energy, so it's not like they're hidden from view...

[wabmester]

Ugh. * CFB, tell me when it's OK to use "conspiracy" again. * They have other indices besides the core. * *Try CPI-U and CPI-W to see if one better represents your particular spending patterns. * If you don't like those, then invent a different set of weights and call it CPI-CFB.

[brewer12345]

Originally Posted by wab

But, I'm not sure what you'd have them use instead of core inflation.* * Are you suggesting that they should make policy around volatile metrics?

Um, what's wrong with unmessed-with CPI? Yeah it tends to be more volatile, but so do lots of other economic indicators.

[cute fuzzy bunny]

So you dont have a problem with someone saying "Inflation is low because CPI says it is, and CPI is leaving out high cost items like food and energy because those went up a lot!"?

[wabmester]

Originally Posted by Cute Fuzzy Bunny

So you dont have a problem with someone saying "Inflation is low because CPI says it is, and CPI is leaving out high cost items like food and energy because those went up a lot!"?

They use the core inflation to set *policy*.* * Nobody uses it to index wages, for example.* * It has nothing to do with *you*.* * It only affects the fed funds rate.

[cute fuzzy bunny]

Then why the hell do I spend every morning watching CNBC and seeing buttloads of talking heads say "inflation is really tame! Look at the core CPI! Dont worry about food and energy, its just volatility!" and Becky Quick regularly retorting "But I have to pay for food and energy and housing". In fact, they've all gotten so used to the routine that they make their proclamations and then look at her and say it for her.

[wabmester]

Originally Posted by Cute Fuzzy Bunny

Then why the hell do I spend every morning watching CNBC and seeing buttloads of talking heads say "inflation is really tame!* Look at the core CPI!* Dont worry about food and energy, its just volatility!" and Becky Quick regularly retorting "But I have to pay for food and energy and housing".* In fact, they've all gotten so used to the routine that they make their proclamations and then look at her and say it for her.

Sorry, I'll start a new cable channel that's all about you. OMG!!! CFB was impacted by the cost of a Honda Pilot today! Run for the hills!

Some people care about the inputs to the fed's decision making process. A lot of people, in fact. The fed funds rate is a huge stick.

[cute fuzzy bunny]

We're talking past each other. I have no problem with how the fed figures out how to set the fed funds rate.

I have a problem with someone saying core cpi represents inflation, and dismissing other cost items that matter very much to almost every person, simply because they're volatile...in no way associated with any fed context.

[wabmester]

Originally Posted by Cute Fuzzy Bunny

I have a problem with someone saying core cpi represents inflation, and dismissing other cost items that matter very much to almost every person, simply because they're volatile...in no way associated with any fed context.

Then your problem is with reporters. Turn off the TV.

[cute fuzzy bunny]

Dang I try hard.

Its fun watching Becky just torture poor Steve Liesman though. I think he wants her, but he cannot have her...

[HFWR]

I can relate...