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During his press conference last week, Federal Reserve Chairman Ben Bernanke said that one of the Fed's big concerns was that inflation was too low. He revealed that the Fed bases this contention on an index of “core inflation,” which excludes food and energy costs.
“Core inflation” is mainly of interest to Americans who don't eat and don't drive. Others will be more concerned with broader inflation measures, such as the CPI-U. However, over the years, the government has modified the CPI-U to reduce the reported rate of inflation. Economist John Williams has noted that if the CPI-U were calculated the same way that it was calculated in 1980, the year-over-year inflation rate reported for March 2011 would have been 10.20% rather than the “official” 2.68% number.
How can a citizen know what is really happening on the inflation front, given that the government seems to be trying to hide the truth? Watch for these ten secret inflation warning signs:
1. You are filling your car up with gas and you notice that the “price per gallon” digits are going up faster than the “gallons” numbers.
2. McDonalds announces that they are freezing the price of their most popular burger, but that they are renaming it the “Quarter Ouncer.”
3. You go to a restaurant in San Diego, and you are relieved to find that the prices on the menu look like bargains. Then you realize that they are denominated in pesos.
4. The Fed announces that they are now basing policy on a new price statistic called “Core Core Inflation”. This new price index excludes food, energy, and everything that went up in price that month.
5. Procter & Gamble complains that the U.S. Bureau of Engraving and Printing is competing unfairly with “Charmin.”
6. People with silver fillings are afraid to smile.
7. The Fed's Quantitative Easing XLVI arrives before Super Bowl XLVI.
8. Street beggars start demanding euros.
9. Airlines begin requiring that passengers bring their own jet fuel.
10. The Fed announces that they are going to be basing policy on an even newer price index, called “Core Core Core Inflation”. This one excludes everything.
Now that you know what to look out for, you won't have to worry about being caught unawares by inflation.
's Categories: Fact & Comment, Op/Ed, byline=Louis Woodhill
How about the Fed chairman lights his cigar with a $1 million US note.
I remember a story about inflation in post WW1 Germany in which a gas company bill collector would sit at home for the full pay period. On the last day of the pay period he would pay all of the outstanding bills with just a small amount of his wages earned on the last day. I don’t know if that is true, but mathematically it could certainly be.
Regards, Gary Marshall
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I have a B.S. in mechanical engineering. I am a software entrepreneur who is currently and investor and board member in three startup companies. I am on the Leadership Council of the Club for Growth. I was born in 1948.
This chapter of my life is about trying to help people make their dreams come true. I started writing about economics because I hate the way that our dysfunctional economy is crushing the dreams of so many people. Young people are delaying getting married and having children because of unstable jobs and incomes.
It doesn't have to be this way, and I want to contribute to solving the problem. I believe that prosperity is possible.
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