Why Inflation Is Lower Than You Think
-
Font Size:
In one of the smartest pieces of linkbait I've seen in a very long time, David Leonhardt today not only defends the CPI, but even says it's overstating inflation:
When the new inflation numbers come out next week, they will indeed be misleading. They will be artificially high.
I hope Barry Ritholtz, for one, is sitting down when he reads it. But Leonhardt makes some really good points. We're much more likely to notice that the price of bananas has gone up, he says, than we are to notice that the price of oranges has gone down. And prices of things we buy a lot, like gasoline, are more obvious to us than things we buy infrequently, like cars or appliances.
Still, the biggest problem with inflation is that it is a tax on the poor, and the poor don't really need lots of new women's clothes or new cars. What they do need is rent, food, and energy. No one's going to mind if the price of Hamptons mansions or Andy Warhols or bottles of 1982 Le Pin goes up a lot. But everybody needs to eat, and, in the US, a majority of people need to drive, if they're going to be economically productive. So some kinds of inflation are much more harmful than others.
That said, if you look at where the CPI is now, and then you ask where economists thought it would be if oil reached $120 a barrel, I think we're probably doing pretty well. Although maybe that just means there's more food and energy inflation to come.
Get Seeking Alpha Free Stock Alerts by Email!
Get Free Stock Alerts by Email!
-
Editor's Picks
-
Most Popular
- Assurant Is A Compelling Short Sell
- Broadcom Enters FTTH Chipset Market
- Another Macroshares Oil Arbitrage Opportunity
- Freeport McMoran: With Copper Prices Rising, It's Still a Buy
- Oil and the Futures Market
- Three Ways to Cash In on Record Meat and Dairy Prices
- Full list of Editor's Picks »
- High Likelihood of a Market Crash »
- Time To Start Buying Some Dogs? »
- Sirius-XM Combination: A Future Microsoft Acquisition? »
- JP Morgan Offer for Wachovia Makes Sense »
- High-Yield Canadian Royalty Trusts: What's the Catch? »
- Adding to My GE Position »
- 7 Stocks for a High Yield Cash Flow Portfolio »
- Nokia: Bargain of a Lifetime - Barron's »
- Top 10 Payout Yield Stocks »
- Wall Street Breakfast: Must-Know News »
- Drybulk Shipping: Prepare for a New Record High »
-
Long Ideas
-
Short Ideas
-
Cramer's Picks
- Big Lots, Wal-Mart and Costco: 3 Musketeers of the Pooring of America
- What's Behind Hansen's Smackdown?
- The Long Case for China Medical Technologies
- ASA Limited: A Golden Opportunity
- ValueClick: Has the Hunted Become the Hunter?
- Petrohawk and Chesapeake Fly on Haynesville Shale News
- StanCorp a Safe Financial - Cramer's Lightning Round (7/2/08)
- GM on the Skids - Fast Money Recap (7/2/08)
- Three Ways to Cash In on Record Meat and Dairy Prices
- Momentum Stocks Stalled - Cramer's Stop Trading! (7/3/08)
- Full list of Long Ideas »
- Crystal River’s Q2 Write-Downs Could Bankrupt the Company
- Assurant Is A Compelling Short Sell
- Fuel Systems Solutions: Time to Take Profits
- GM an Unlikely Hero - Fast Money Recap (7/1/08)
- Pair Trade Visa and Capital One
- Amazon's Kindle Numbers: All Fluff, Zero Substance
- A. Schulman: Cashless Profits
- Titan Machinery: Doesn't Anybody Look at Valuation?
- Goodrich Petroleum: Gas in the Ground Doesn't Mean Cash in the Bank
- Outlook Remains Grim for MBIA, Ambac
- Full list of Short Ideas »
- StanCorp a Safe Financial - Cramer's Lightning Round (7/2/08)
- Momentum Stocks Stalled - Cramer's Stop Trading! (7/3/08)
- Expecting a Lift for Pediatrix: Cramer's Mad Money (7/3/08)
- The Most Bullish Thing - Cramer's Stop Trading! (7/1/08)
- Exelon's Got Nukes - Cramer's Lightning Round (7/1/08)
- Prescription Prediction for Allscripts - Cramer's Mad Money (7/1/08)
- Rex Marks the Spot - Cramer's Lightning Round, (6/30/08)
- Medicare Bill Buys - Cramer's Mad Money (6/30/08)
- Cracker Bottom of the Barrel - Cramer's Lightning Round (6/27/08)
- Britannia Bulk Rules the Waves - Cramer's Mad Money (6/27/08)
- Full list of Cramers Picks »
Most Popular Feeds
-
ETFs
-
US Market
-
Long Ideas
-
Alt. Energy
- Full list of feeds »
Hedge Fund Jobs
Job Seekers:
- Search jobs by category
- Get job alerts by email or live feed
- Apply online
Employers
- See all recruitment options
- Get applications online or by email




This article has 21 comments:
This (true statement), in itself nullifies your article's main premise. And for the record, I'm sure Barry Ritholtz would agree with it 100%.
Inflation in everything we *need*, but deflation in those things we *don't*. CPI = inflation measure for only those things we *don't* need.
In the 1970s, people were urged to cut down on unnecessary auto trips, combine errands, and the like, to limit gasoline usage.
Inflation is like sales tax on food: The least able to pay are stuck with the brunt of the impact.
loquitur
on
"Recessions ALWAYS stop inflation"
So, perhaps if David Leonhardt's premise is correct...
...it would appear there is possibly a wee bit of "recession" creeping into the economy.
now, as GT Mark correctly pointed out, price increase does not equal inflation. therefore, the debate about inflation rates (and whether they are stated correctly or not) misses the point: as a result of loose monetary policy and a credit bubble (excess dollar creation) the chicken now come home to roost in form of largely externally driven higher prices for food and commodities (memo to bernanke and paulson: a weak dollar isn't bad, of course and doesn't affect the ordinary u.s. citizen, no?). The point is: the economy as such cannot escape them! Either consumers get squeezed to the hilt - or the corporations cannot paas their higher input costs on to them. Either private incomes get hit very hard - or corporate incomes get - which in turn lead to slower growth, lower investment, job losses etc.
People who like to brag that a scenario along the Japanese ain't possible for the USA because the Fed will prevent it, should think twice. Low interest rates cna serve to repair balance sheets over time. They can do almost nothing about overstretched borrowers (in the U.S.' case consumers) as their problem is not the price of new credit - but the income needed to service existing debt and pay bills.
With banking sector paralyzed as it is today a 1% borrowing rate set by the fed cannot be passed on to consumers by the banks as their real costs of capital are way above that.
a slow, water-torture like march toward first stagflation and then deflation and depression seems to be almost inevitable over the coming years.
good luck to the new administration.
famous line (in reverse of the manipulated election in 2000): "what would you do when elected?" - "I'd demand a recount"
however, thanks for pointing out that article.
I would add that there are ways all of us can reduce the impact of inflation on our own spending. Also that it was Alan Greenspan who went before Congress again and again to argue for reducing the rate at which Social Security recognized inflation.
And finally, yes, inflation's most significant impact is on the poor--now that you have said it, do you feel better?...and what EXACTLY do you (seriously) propose is done to assist the poor?
Tiedeman
"Everybody has to eat" Well guess what? "Eats" don't count either!!
We've doubled the dollar liquidity with printed fiat dollars--That alone should have doubled inflation---that also is kept from the Public!!
What a joke!!!.
is much more to come.
The gov't is totally cooking the books on inflation measurement.
Bearfund's comments are dead on about robbing savers to bail out
debtors.
Inflation is theft, pure and simple.
What a surprise.
The USA government is not "by the people and for the people". It represents exclusively very narrow special interest groups. So, it must lie. They are no better than a used-car salesman.
Personally, I do not remember when the last time US President told truth. May be Ronald Reagan tried doing it occasionally.
As the Chinese let their currency rise, the cost of goods to Walmart increases, and the cost of a basket of commodities (priced in dollars) decreases...thus fueling demand by the Chinese. This is a decade long process needed to cure a severe global monetary imbalance.
There is no commodity bubble but a US treasury bubble, and a dollar bubble.