Barry Ritholtz Does Not Seem to Understand the Purpose of "Core Inflation"

The Federal Reserve's mandate to maintain price stability requires that whenever significant inflation threatens it is supposed to hit the economy on the head with a brick: raise interest rates, and so discourage investment spending, lower capacity utilization, raise unemployment, and so create excess supply. The Federal Reserve would rather not do this unless it has no other option. If the rise in inflation is thought to be (a) transitory and thus (b) self-limiting, the Fed would prefer to let sleeping dogs lie rather than hit the economy on the head with a brick.

The Fed cannot, however, just say "we regard this rise in inflation as (a) transitory and thus (b) self-limiting, and so are going to let sleeping dogs lie." A Fed that does that quickly loses its credibility as an inflation-fighter, and a modern central bank with no inflation-fighting credibility is in a world of hurt.

However, when increases in inflation are confined to (i) energy and (ii) food prices, odds are that the increase is transitory and will be self-limiting. Hence the concept of "core inflation." If the Federal Reserve concludes that the current rise in inflation is transitory and self-limiting, it can point to the core inflation number as a principled excuse for not hitting the economy on the head with a brick.

The Fed uses the concept of core inflation not because it doesn't recognize that food and energy prices are not rising, but because it doesn't want to hit the economy on the head with a brick when it isn't necessary just because it has to demonstrate that it is one tough mujer.

Here is Barry:

The Big Picture | There's No Inflation (If You Ignore Facts): One of our favorite topics -- inflation ex-inflation -- has been slowly creeping into the mainstream. We have been hammering away on this for years; the surprise half point cut by the Fed is the most likely reason as to why the MSM seems to have discovered this meme. Here's the latest from Dan Gross' Contrary Indicator column in Newsweek:

"Readings on core inflation have improved modestly this year," the Federal Open Market Committee said in justifying its 50-basis-point interest-rate cut last month, while conceding that "some inflation risks remain."

Catch that bit about "core inflation"? That's Fedspeak for: inflation is under control, unless you look at the costs of things that are going up. The core rate excludes the prices of food and energy, which can be volatile from month to month. Factor them in, and inflation is about as moderate as Newt Gingrich. In the first eight months of 2007, the consumer price index—the main gauge of inflation—rose at a 3.7 percent annual rate. That's more than 50 percent higher than the mild 2.3 percent core rate. The prices of energy and food are soaring, at 12.7 percent and 5.6 percent annual rates, respectively, and have been doing so for years. As a result, the CPI—including food and energy—has risen 12.6 percent since July 2003, for a compound rate of about 3 percent.

Signs of inflation are evident throughout the economy. When investors fear a rising inflationary tide, they latch onto the driftwood of gold. The day Bernanke cut rates, the price of the precious metal soared to heights not seen since 1980, when inflation ran at nearly 12 percent! I read about this in The Wall Street Journal (whose newsstand price rose 50 percent in July), which I picked up in the lobby of a New York hotel (where the average nightly rate soared 12.5 percent in the first seven months of 2007 from 2006, according to PKF Consulting) while sipping on a Starbucks Frappuccino (whose price has risen twice since last October)."

The whole article is worth your time to read . . .

Comments

[gordon]

Prof. DeLong says: "...a modern central bank with no inflation-fighting credibility is in a world of hurt".

We wouldn't want that, would we? So the Federal Reserve is allowed to use a "principled excuse" like core inflation to avoid an unacceptable admission of indifference to a "temporary" phenomenon. Why unacceptable? Because it implies indifference to the hurt of the people who have to pay the rapidly-rising food and energy costs.

Wouldn't want to look indifferent, would we? Could that be the real "hurt" that the Federal Reserve is avoiding here?

[howard]

prof, here's the thing: if the volatility of energy and food is moving in both directions, then core inflation makes sense as a category.

but in the last few years, the movement of energy and food has been almost entirely upwards, and has not yet appeared to be "self-limiting."

[esb]

Let me say this as loudly as I am able.

What Barry has been trying to communicate over the past several months is a spreading belief that the central bank in the USA has devolved into "board" of con men attempting to "control" inflation through a malign attempt to manage "expectations." The Board of Governors is eminently comfortable with a 4+% rate inaccurately reported by the BLS as 3% with the core at 2%. The Board is perfectly aware that crude and food no longer fluctuate above and below the core but are in a secular rise well in excess of the core.

The purpose of the tap dance is to cause economic actors to experience 4+% inflation while behaving as though they were experiencing 2% (or less). This is an attempt to play reality against perceptions. The ultimate goal is nothing other than intentional monetary debasement.

In other words, the Board is running a flat out con game in which US citizens (and others) holding dollar denominated assets are the "marks."

Barry ... correct me and/or amplify here if you wish.

[Bloix]

Are we supposed to believe that if we just wait a while longer we'll be seeing $2 gas again?

[epl]

Barry's yet another rich ny guy who likes to tell us about what inflation is doing. Maybe when he he strays left of the Hudson,he'll be worth listening to. Pffffft.

[Charles]

Brad, wildly OT, but look at tinyurl.com/2wf574, an article from The Daily Mail regarding SecDef Robert Gates's aide Debra Cagan.

Trust me, the photo is worth it.

[Rob Dawg]

The Fed is allowing a lot more money to be created than is supported by the underlying economy and using the subset core inflation to justify that policy. M3 is beyond the pale and gold and oil and other commodities know it. Bostonians can't burn their plasmas this winter to keep the Fed in their comfort zone.

Face it. The problem the Fed has is trifold. Inflation is higher than they report. Their influence on actual inflation is less than assumed and their ability to manage future expectations is almost gone.

Trade you your hedonics adjusted 15 years of future home price basis for the 16 tuition-years of college prices I am facing.

[christofay]

By dribs and drabs we are learning the expectations of our Pres George W Bush. He expected the Iraqis to say thank you, he expected a second time around land-slide like St Ronald. His father got a $1 million gift from the King of Kuwait for rescuing the aristocracy and preserve the right of middle class Americans to buy gas at the full price at the pump. What do you think Pres Bush's expectations are for a gift from the middle east, he needs to replenish the coffers, how much, who is going to give it? It definitely has to be bigger than Dad's, $10 mil, $100 mil?

An observation on the practice by the Fed Reserve to turn a blind eye to energy and food inflation, these are two Republican favored special interest groups. Energy inflation is surely appreciated by Houston upper management in the natural resource extraction fields and the kings and sheiks of the Middle East. Saudi Arabia and Kuwait have gotten so many additional Greenspanbacks that they don't want anymore of them. Food price inflation of course raises margins for the ADMs of the nation.

Also the Fed Reserve throws up its hands and declares there's no way it can regulate asset price inflation, bucket shop stocks like Pets.com, or housing price inflation. These are two areas that the middle class investors have gotten trapped while Greenspan mumbo jumboed "espectations of stock analysts" and "manage your payments with floating rate mortgages." Without the housing inflation and mortgage borrowing over the term of Bush's administration there wouldn't have been any economic growth in the U. S. It would have been one long recession.

Prof Delong I am afraid that your support of the Republican Greenspan Fed is an example of being handed the rope to hang ourselves.

[matt wilbert]

I think Mr. Ritholtz understands the concept of core inflation, as does Daniel Gross. I think they don't believe the concept is valid in the present circumstances. Maybe they are wrong, but it might be good to explain why you think they are.

[Matt]

Oh! Fed, darling. Do not fear me, rock me, roll me, rate me, change me.

You tickle me, make me peak, you deflate me and inflate me, my passion explodes.

The roar, that expectation, that bump, that spike; only you Bernanke.

Make it fun, ad an experiment here and there, let your imagination go wild, I yearn to know your yields, your flow, and Oh!, the risk. I am truly excited.

[knzn]

Brad, as evidenced by some of the comments thus far, I don't think you're making the case strongly enough. An increase in the growth rate of food and energy prices should be temporary because they are largely storable and traded in speculative markets, which should anticipate any future expected price increases before the future gets here, leaving only normal price increases for the future. But (for the sake of argument, and because it seems to be a good approximation of what has happened in oil over the past 5 years) what if the speculators turn out to be consistently wrong, and the "food and energy inflation" is not transitory?

My answer is, "So what?" Would it be so terrible to live in a country where food and energy prices were rising at 5% year after year while other prices rose at 2%? (Bear in mind that the alternative would be to have other prices falling to offset food and energy price rises; the Fed cannot control the real prices of food and energy.)

The Fed has to target something, to give itself discipline and keep the markets' confidence so as to foreclose the possibility of hyperinflation. But why on earth should it target the general price level? Until 1971, the Fed was effectively obliged to target the price of gold -- not the best choice of what to target, but surely no more inherently unreasonable than the general price level. Theoretical considerations (about which numerous papers have been written) suggest that a price index excluding food and energy would be a much better target than a general price index.

But I would go even further. I think the Fed's Humphrey-Hawkins mandate for "reasonable price stability" REQUIRES IT to target only those prices that CAN be reasonably stabilized. There is no way to get food and energy prices to be reasonably stable. If the Fed were to attempt such an impossible feat and in the process give up some stability in other prices, it would be failing in its mandate.

Furthermore, let's suppose (again for the sake of argument) that we really care about the general price level. One of the worst things that can happen is for that general price level to go down. Food and energy prices can turn on a dime, so there is no way to avoid the possibility of a sudden, unexpected decline in food and energy prices. If such a decline happens when core prices are also falling, or even when core prices are just rising very slowly, we're screwed. If the Fed allows itself to be forced to push down core inflation in order to keep the general inflation rate in a certain range, then the Fed will be taking an unacceptably high risk of deflation.

(Actually, the reverse also applies: if the Fed allows core prices to rise rapidly to offset falling food and energy prices, then the Fed is taking an unacceptable risk of too-high inflation, since food and energy prices, again, could turn around sharply and unexpectedly.)

Damn, the case for targeting core inflation (instead of headline inflation) is even stronger than I thought. Sorry, Barry Ritholtz and Daniel Gross, but your point of view is completely wrong!

[Measure for Measure]

Oddly enough, Aug's CPI report demonstrated the transience of food and energy inflation pretty well.

The CPI inclusive of food and energy indeed rose by 3.7% in the first 8 months of the year.

But the 12 month CPI came in at 2%, lower than the core CPI.

Furthermore, recent energy inflation is... negative. In June, July and August, the monthly energy price changes were -0.5, -1.0 and -3.2%.

http://www.bls.gov/news.release/cpi.nr0.htm

Daniel Gross of Slate magazine is also spreading this nonsense about out-of-control inflation. A glance at Table A of the the BLS's August CPI report shows how silly it is.

[christofay]

Bush's BLS stats say it's all undercontrol? Gee, I can sleep peacefully now.

Other things going up in price greater than the whatever construct the Govt points with glee to,

health insurance

tuition

real estate taxes

Isn't the Bush's salary double what Clinton's was?

[Meh]

Brad DeLong makes the technical point that Mark Thoma also makes. I think the problem with that point is that really there are two phenomena going by the name "inflation" and referring to them by the names "core" and "real" doesn't help the confusion in public policy.

"Core" inflation is a narrow technical measurement which as they say, is a predictive number for future "inflationary potential."

"Real" inflation is the measure of how much less you can buy with your money in the bank today than you could have done yesterday.

The problem is, many in public policy and politics and even many economists base their assessments of things like GDP growth using "core" inflation numbers. This puts their estimate of our wealth at odds with our experience of it.

[christofay]

I thought inflation was an increase in the money supply beyond what the growth in the national economy would require. Increases in core or real inflation are just manifestations of inflation. The Fed has been pumping furiously the entire length of Bush's administration, hasn't it? It's a technical discussion whether the numbers to follow are M2 or the discontinued M3; that's a discussion that I would need to follow.

It's telling that reports of M3 have been discontinued (the better to manage expectations?). Glimpses of estimates have growth in M3 at over 10%. Growth in the economy is also hard to follow as the govt is ref and major player.

Here's another technical aspect that I would like to read more of, Volcker set parameters on money supply growth and let interest rates go where the market demanded, we're a market based economy. How does this suffer in comparison to St Mr Magoo and his The Age of Flatulence: The Greenback Story?

[christofay]

Debra Cagan or a cross dressing Rudy 9-11 Guiliani? What's doing with that White Iron Cross she's wearing? That's like Nazi Regalia in technicolor. Does she go leather shopping with St. Sec Rice?

[Barry Ritholtz]

Price increases in food and energy have been transitory and self-limiting ?

PUH-LEEZE.

Over the past 5 years, we have heard this emphasis on the Core levels.

Over that same time period, Oil has risen from ~$15 to over $80 (Gee, that doesn't sound either transitory or self limiting); Food prices have risen nearly as much, with beef, Dairy and grains all up tremendously. (Milk and cheese have nearly doubled over the past 12 months).

Outside of the absurdist core, BLS has not done a very good job capturing the increases in Health care costs, Housing or Education.

Look, if you want to pull out one month as aberrational (i.e., Nat Gas post-Katrina) that's fine. But to ignore a multi year trend where "volatility" is essentially in one direction is to accept an analytical misdirection that only serves to obscure Reality.

Ever since the Fed dropped rates to 1%, the dollar's purchasing power has fallen, nearly every asset class denominated in dollars has soared, and Inflation has risen dramatically.

Except in the core. Inflation ex-inflation, prices are stable.

No thanks.

(Note: This link takes you to a long list of prior commentary on inflation: http://bigpicture.typepad.com/comments/inflation/index.html)

[knzn]

Mr. Ritholtz, you of all people, with your persistent belief in the "persistency" of market trends, should be able to accept the idea that a 5-year bull market in food and energy does not constitute a permanent increase in the growth rate of food and energy prices. Otherwise, using the same argument, one could have objected, at the end of the 1990s, to the view that large movements in aggregate stock P/E ratios are are transitory and self-limiting.

[kharris]

"Self-limiting" is worth thinking about, too. It is generally accepted that rising energy costs represent a drag on growth. If so, then higher energy prices are likely to prove self-limiting. Hiking rates could compound the contractionary impulse from rising energy prices.

This notion, like the notion that higher energy prices will prove transitory, is not well supported by the record of the past few years, but this is where knzn's point about trends that can't persist comes into play. We want to think about the possibility that the normal patterns associated with energy prices are just taking longer to play out.

One more point. It is not consistent to pooh-pooh "peak energy" thinking and at the same time argue that higher energy prices are going to persist. Not that anyone here has done that. But if one thinks the long historic pattern of falling real commodity prices is at an end, then we need to rethink more than monetary policy. Back to debates about population limits and sustainable growth.

[bakho]

Is this done so as to NOT repeat the mistake that Volcker made in the late 1970s by taking interest rates to double digits in response to high oil prices?

After all, it was conservation policy of Ford and Carter that eventually caused energy prices to stabilize and drop and not Fed monetary policy. It is not clear that high interest rates were helpful, especially for efforts by industry and consumers to invest in conservation and oil alternatives.

[kharris]

To clear up a couple of misconceptions. Inflation is not the too-rapid rise in money supply. Inflation is the rise in prices of goods and services. The notion is that a too-rapid rise in money supply leads to inflation, but that is not the same thing as being inflation.

BR's claim that "ex-inflation, prices are stable" suggests that he does not know that the core CPI measure accounts for 77.4% of all-items CPI. Prices are stable (-ish) for about 3/4 of the items in the CPI basket. If one doesn't know that, one may be more prone to argue for tighter monetary policy in the face of rising commodity prices. If one does understand that prices are relatively stable for the least volatile 3/4 of CPI components, then one is faced with figuring out whether one wants monetary policy to induce deflation in the stable 3/4 to enforce stability in the overall index. Perhaps BR does understand how CPI is divided up, but if so, I'd be interested to hear why he thinks deflation in the core aggregate is a good outcome.

[Charles]

Christofay, the cross on Debra Cagan is actually the Commander's Cross of the Hungarian Order of Merit. But that, her face, and the anti-vampire neck armor create the appearance of a very homely Valkyrie.

BTW, I think both Brad and Ritholtz are wrong. Any measure of inflation is a proxy for the real thing. There are huge price increases in education, medicine, and housing which many of us feel are not captured by any proxy measure, but are apparent in rising levels of debt and falling levels of saving.

Oil (and food, who costs are driven largely by oil) should not be excluded if their deviations from the trend are systematic, rather than random, if the goal is to get an accurate picture of lifestyles. However, if the goal is to decide whether general inflation is breaking out, core inflation is a useful proxy.

[robertdfeinman]

It should be relatively simple to demonstrate whether the models that the Fed currently use, which are based upon core inflation, still work.

If there has been a real paradigm shift so that food and fuel prices no longer behave as they did previously than the models should perform poorly. Looking back over the past 3-5 years should provide a big enough sample for testing the hypothesis.

Economists are reluctant to abandon an existing model, especially when they don't have a new one to use in its place. Look at how long the concept of NAIRU has persisted.

[me]

"odds are that the increase is transitory and will be self-limiting."

So Brad is right and thte head of Nestle's is wrong??

Gee, I guess all you "temporary" people missed this:

Nestle warns of significant food price rises-paper

ZURICH, July 6 (Reuters) - Nestle (NESN.VX: Quote, Profile, Research), the world's largest food group, warned that a "significant and long-lasting" period of rising food prices was likely as a result of demand from China and India and the use of crops for biofuels.

Nestle CEO Peter Brabeck told the Financial Times in an interview published on Friday rises in food prices were due to long-term and structural changes in supply and demand as well as temporary factors.

"They will have a long-lasting impact on food prices," Brabeck told the FT.

Brabeck said population growth, rising demand from "the phenomena of India and China" and the use of food products by biofuel producers had put pressure on international food markets, the FT reported.

http://www.reuters.com/article/companyNewsAndPR/idUSL0627131520070706

Or maybe you don't buy food. Some of you won't recognize inflation until Starbucks raise prices again.

[Anon]

Indeed Mr. Delong, I'd have to echo what some of the other commenters have been saying.

Food prices have historically been stable but somewhat volatile. If a freeze wipes out oranges in Florida, next year the oranges will probably grow fine and orange juice prices will return to baseline. Disregarding THOSE changes in food prices are fine.

However. What if there are effects that hit all of agriculture at once, and all of energy at once, and all those effects are concentrated upwards? Disregarding THOSE effects on food and energy prices would be wrong, misleading.

The whole energy/corn/oil/global warming/China industrializing situation is combining to drive food and energy prices up. These are not transitory or ephemeral or self-limiting changes, and there is zero prospect that they will change back down. I suspect this is making up almost all of the food and energy inflation.

'Core' inflation is a concept whose time has passed. It is now much more misleading than it is enlightening.

[knzn]

There are really 3 separate questions here:

(1) What is the best measure of retrospective changes in purchasing power?

(2) What is the best indicator of the general trend in prices (with respect to what can expected in the immediate future)?

(3) What is the best target for monetary policy?

For the first question, obviously the full index is better than the core, and nobody denies that.

For the second question, there is room for debate, but if the only choices are the core and the full index (to measure inflation for a specific period of a year or less), I would still choose the core. (If you let me smooth the inflation rate with, say, an exponential smoother, I might prefer the full index.)

For the third question, I think there is little room for reasonable debate: the core is better. When food and energy prices go up relative to other prices, the optimal policy rule would accommodate those increases so as to allow other prices to remain stable. The increase in the general inflation rate does little harm; the alternative of deflation in the non-core component would do considerable harm.

Messrs. Ritholtz and Gross, and their supporters in this commentary, are finessing the issue by not distinguishing among these three purposes.

[Kelly]

American Heritage Dictionary ;
tran•si•to•ry
adj. Existing or lasting only a short time; short-lived or temporary
--------------------------------------------------------
So am I to understand then that the price of gas/oil is coming down? It went up here in the fall of 2005. I’m pretty sure we won’t see it go down in our lifetime.
As to food, well, there is now a massive program to turn corn into ethanol. You may have heard of it. Also, there is considerable sprawl eating up the farmland of the USA. I don’t expect to see the price of food go down in my lifetime.
Speaking of which; what is the time factor that an economist thinks of when he uses the word “transitory” ?

[kharris]

Another misconception that probably needs mentioning - one that shows up pretty often in anti-core shout-fests - is that policy makers look at just one measure of inflation. They don't. They also don't look just at inflation, but at its precursors. Casting policy makers' preference for core CPI as a policy guide as a terrible, criminal, unholy thing doesn't make sense once it is acknowledged that these guys are looking at productivity growth, GDP growth, money supply growth, the dollar's foreign exchange value, demographic trends, financial market conditions, consumer confidence, CEO confidence, hiring plans, capital spending plans, temporary hiring rates, ancedotal reports of all kinds, and so on.

Fed officials need to be dumber than we are to make the sort of errors that some of us attribute to them. Most of the time, they are smarter than most of us. We should be very, very happy that Yellen and Poole and Bernanke and Kohn are our central bankers, and that Ritholz is not.

[me]

"Another misconception that probably needs mentioning - one that shows up pretty often in anti-core shout-fests - is that policy makers look at just one measure of inflation. They don't. They also don't look just at inflation, but at its precursors. Casting policy makers' preference for core CPI as a policy guide as a terrible, criminal, unholy thing doesn't make sense once it is acknowledged that these guys are looking at productivity growth, GDP growth, money supply growth, the dollar's foreign exchange value, demographic trends, financial market conditions, consumer confidence, CEO confidence, hiring plans, capital spending plans, temporary hiring rates, ancedotal reports of all kinds, and so on."

It would seem you left off how much the cost of living for social security would be if inflation were truly reported. Al the hedonic adjustments dont' square any better the BD model for the BLS statistics. Those central bankers you worship have only the "big" money in mind and could care less about the average citizen.

Nice to know you believe in low inflation and low unemployment. Watch out someone doesn't try to sell you a bridge.

[d_rumsfeld]

http://futures.tradingcharts.com/chart/CO/M

That sure is volatile and transitory. Every time oil has gone up in the last 10 years, it has come right back down.

[bailey]

Can ANYONE on this board describe HOW the housing component of core-cpi is collected & measured?

[Barry Ritholtz]

Let me add that what makes this less likely to be "transitory or self-limiting" is that the global economy has recently added ~2 billion people from China and India, who are no longer merely subsistence living.

As they enter the "middle class" (whatever that is in Asia) we can expect their demands for food, energy, consumer goods, transportation, technology, etc. to continue to pressure prices higher.

Lastly, short of causing a global recession, I do not think there is a whole lot the U.S. Fed can do about this . . .

[JonF]

Re: Milk and cheese have nearly doubled over the past 12 months

Where? A year ago I was paying $1.79 for a half gallon of skim milk. Now it's going for $2.59. Yes, that's a hefty jump, but no where near "doubling".

[wood turtle]

Why don't they just go back to CPI instead of core?

If inflation appears, it may signal a time for higher taxes and more sinking money into infrastructure. Monetary solutions may be inadequate, and even harmful. Raising interest rates to throw people out of work and lower inflation is blunt force trauma.

[bigTom]

I think there is are a couple of important issues here. They revolve around the effects of long-term secular changes in either the national or world ecconomy. We have a national secular change, healthcare as a percentage of GDP is rising. We have an international one, oil is becoming a scarce (and hence relatively more expensive) commodity. Food price increases are indirectly driven by energy prices, both by the need for energy as an input, and energy in the form of corn based ethanol as a competing product. The normal concept of inflation does not neatly fit into this sort of picture. Policywise, we need a method which achieves near optimal response of the economy to these secular changes, as well as other more familar internal effects.

[JH]

"CPI. Prices are stable (-ish) for about 3/4 of the items in the CPI basket"

kharris, these things are weighted, aren't they?

Does anyone have a greater than usual interest in keeping the 'official' inflation rate low, what is it, and would it affect the weighting?

[kharris]

JH,

Can you demonstrate that the weightings have been altered in a manner that is not consistent with shifting consumer behavior, but that is consistent with slowing the rise in the core index? Otherwise, you have done no more than point out a potential for cheating. The potential for cheating is rampant, no question. The guy at Shadowgovernment or whatever it's called says he has nailed the BLS good and proper, but I haven't seen a lot of cheering from people with the capacity to know whether he is right.

[Barry Ritholtz]

Historic Surge In Grain Prices Roils Markets (WSJ)
http://online.wsj.com/article/SB119093856250042023.html

“Rising prices and surging demand for the crops that supply half of the world's calories are producing the biggest changes in global food markets in 30 years, altering the economic landscape for everyone from Consumers and farmers to corporate giants and the world's poor.”

~~~

German harmonized CPI jumped 2.7% y/y in August, the second highest increase since records began in 1996. May 2001 is the record. German retail sales have declined 2.2% y/y.

How come Germany has much higher inflation than the US with the Euro at a record vs. the dollar?

The China Daily:
http://www.chinadaily.com.cn/bizchina/2007-09/30/content_6148741.htm

“China's imports of gasoline hit a ten-year high in August after the country's economic planner ordered State owned oil firms to make up shortfalls in supply.

Imports reached 45,000 tons last month, up 7,896 percent from August last year.

Meanwhile, exports shrank to 257,000 tons, down 18.3 percent from August last year and down from 330,000 tons in July and 526,000 tons in June.”

~~~

Over the past week and a half the financial media has heralded the end of inflation because the August CPI and Core were negative and ‘the Fed’s preferred inflation gauge’, PCE, is up only 1.4%.’

How come inflation is confined to everywhere in the world except in the US ?

[me]

Barry, it is hopeless. The pointy heads have declared inflation dead by their hedonic adjustments. Since the ICrap, I mean IPhone has gone from $600 to $400 there must be deflation in the air.

[weichi]

I think you guys are misreading brad's post.

He's not saying that core inflation is the right measure for the Fed to attempt to control. He's saying that core inflation is a convenient measure for the Fed to use an an *explanation* for their actions.

I thought his post was very clear on this, but it seems to have been missed?

[B]

Barry plays to a band of Tin-Foil Hat conspiracy theorists on his blog ......they read Catcher In The Rye each day and spew insanity -laden

[slick]

The cost of living is going up dramatically. Academics can discuss, debate, and argue all they want. It seems they don't live in the real world. Ivory tower?

Healthcare, education, food, gas, heating, just about every service I use - it's all going up, up, up.

Main St. is croaking.

[UrbanDigs]

Agreed with Howard. It doesn't seem food and energy prices are showing volatile up and down swings in the past 3 years or so. The lines are convingcly UP!

So, where is the transitory nature and where is the self-limiting behavior as prices rise?

hence, core has a lot of noise in it and may not be as valid as it was in the past on the real picture!