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]

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]

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]

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.

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]

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]

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]

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]

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...

 

[Nords]

Excuse me for a moment while I hijack this thread with a peripherally on-topic post:

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>

I remember Goldie Hawn. Were there other cast members? Oh, yeah, Lily Tomlin.

Wikipedia has this entry. Scroll down to the bottom of the page to track down the cast members.

JoAnne Worley has been doing bit parts on sitcoms, as has Dick Martin. Gary Owens was on an episode of "That 70's Show" a few years ago. Dan Rowan has passed away. Judy Carne had a 1970s-80s reputation as such a huge drug addict that even Steven Tyler of Aerosmith was in awe of her powers.

 

[d]

back to the original post:

Shiff is off-base on several counts.

1) he states/implies, but it does not necessary follow, that increased home ownership decreases the CPI.

2) "core" CPI is NOT used to measure experienced inflation, but to approximate underlying systemic inflationary pressures within the system -- it is emminently reasonable to do this! (the problem is that some folks misundertand why this is done.)

Don't suppose he's really being objective on the matter, as he concludes: "Now that reality is beginning to set in, time is running out to get out of the dollar. Protect your wealth and preserve you purchasing power before it’s too late. Download my free research report on the powerful case for ..."  Have I heard this before?   Better buy g*ld or beaver cheese (before it's too late).

 

[VoyT]

Excuse me for a moment while I hijack this thread with a peripherally on-topic post:
I remember Goldie Hawn.  Were there other cast members?  Oh, yeah, Lily Tomlin.

Wikipedia has this entry.  Scroll down to the bottom of the page to track down the cast members.

JoAnne Worley has been doing bit parts on sitcoms, as has Dick Martin.  Gary Owens was on an episode of "That 70's Show" a few years ago.  Dan Rowan has passed away.  Judy Carne had a 1970s-80s reputation as such a huge drug addict that even Steven Tyler of Aerosmith was in awe of her powers. 

   I'll just continue the hijack .. I was in grade school, but I loved Laugh-In.  Thanks for that link, Nords. I knew Dick Martin had done some directing, too, but hadn't realized he directed the Newhart shows... 
   Here come de judge ....

 

[astromeria]

Yeah, sorry about the hijack. I have a tendency to take a question and go somewhere unintended with it. Or as my daughter said at age 13: "Mom, we'll never know when you have Alzheimer's!"...Sock it to me, kid....

 

[cute fuzzy bunny]

I was getting a tooth cleaning when the new dentist of the week my wifes dental office owner hired walked in saying "you bet your bippy!". I made the mistake of saying "I remember that show", after which I was regaled with tales of 1960's television shows I'd rather forget.

Which beats the crap out of the last dentist of the week who had a variety of opening topical questions designed to get him started telling you for an hour about his airplane, his surgeon sons maserati, their multiple million dollar homes and their exotic vacations.

Which explains why he was in his 70's and still working.

 

[Nords]

Yeah, sorry about the hijack. I have a tendency to take a question and go somewhere unintended  with it. Or as my daughter said at age 13: "Mom, we'll never know when you have Alzheimer's!"...Sock it to me, kid....

Most of our parental conversation is filled with lines from classic rock lyrics and old TV shows. Try to explain the concept of "Land shark!!" to a 13-year-old at a dinner table or to a crowd of her friends.

We considered buying our kid about 40 DVDs so that she can catch up with us, but on further reflection we're not interested in teaching her our language and she's not interested in learning it.