WSJ Opinion Editorial tells the truth about the Inflation numbers
A dose of reality not a bad thing right now. Bumped by carol in the interest of sanity. Originally posted 2008-03-11 08:22:47 -0500.
If you are old enough, in 4th grade, accustomed to jig saw puzzles, and then looking at a map of the world, you might have thought: "gees, this rounded protruding part of South America looks as if it could fit right into this shallow depression along the edge of Africa." (Okay, I know that fourth graders don't talk like that, but hopefully you get the picture.)
The teacher or the nun probably slapped you down for such nonsense, until tectonic plate theory and Al Gore came along to provide vindication.
I felt like that yesterday reading Gerald Driscoll Jr.'s Opinion Editorial,
Inflation Alert, in the Wall Street Journal.
Driscoll, the former vice president of the Federal Reserve Bank of Dallas, points out that the Fed is wearing no clothes ... as those of us who actually have to pay for our food, housing, and transportation could have told him.
With "headline" consumer price inflation (CPI) at 4.3% for the last 12 months, we have now reached the inflation rate that spurred Richard Nixon to impose wage and price controls on Aug. 15, 1971.
What is different today is that the Fed now takes food and energy prices out of the inflation measure and instead reports what it calls "core inflation." Thus we're told inflation is only 2.7%.
Driscoll goes on to point out that although the Fed had for years all its technocrat reasons (excuses?) for the "core inflation" index, average citizens or "dollar users" in Driscoll's terms, don't experience "core" inflation at the checkout counter. We experience the real thing.
It's about time we started talking about the economy in real measures, not tinkered ones that support current administration policies. As Driscoll's piece points out:
The Fed needs to return to its mandate of controlling inflation. The first step is for the Fed to shed an inflation measure that misleads itself, other policy makers, and the markets. We do not need a rerun of the 1970s. Once is enough.
Let's hope the FED is listening and does, as Driscoll advises, shed shaved statistics that become the basis for bad policy. In the meanwhile, the Fed's credibility is tanking, just like the dollar.