The Bureau of Labor Statistics reported today that the Producer Price Index (PPI) rose .4% last month. This inflation is exactly what Austrians would expect to result from Helicopter Ben running his dollar-printing presses at full speed.
Though everyone who buys things should be concerned about this inflation in finished goods, the talking heads on CNBC and other news outlets are telling everyone to pay no attention to that man behind the curtain. They tell us that we shouldn’t be concerned about inflation because if one excludes food and energy, inflation of finished goods is a measly .1 percent. Economists and journalists refer to the PPI without food and energy as the “core PPI” and assure the public that the core number is much more important than the overall PPI. This is true–so long as you aren’t one of those people who eats food or uses fuels to heat your home or commute.
Take a look at this story from MarketWatch.
“Over the last ten months, core prices have increased 0.1% seven times, hardly sufficient to warrant concerns about inflation,” said Dan Greenhaus, chief economic strategist at Miller Tabak.
“It remains very, very difficult to believe the Fed should be concerned about inflation in the economy (in the aggregate) when the tools they use to measure inflation continue to suggest a very moderate pace of price appreciation with the prospect of further declines more generally.”
Food prices rose 1.2% in September. The price of meat climbed 5.2%, accounting for two-thirds of the increase in the food category. Prices for dry and fresh vegetables also rose, and the cost of processed young chickens saw the biggest one-month increase since 2006.
Energy costs, meanwhile, increased 0.5% as natural gas prices ticked higher. This category is driven mainly by changes in price of natural gas for home heating and gasoline for motor vehicles.
Producer prices have risen 4.0% over the past 12 months on an unadjusted basis, but the core rate has grown at a much slower 1.6% pace.
So we are not supposed to worry about inflation because most of the inflation came from meat (5.2% last month) and gasoline (6.1 % last month)? They conveniently neglect to mention that a significant portion of household expenditures are on food and energy. They also neglect to point out that lower income households spend proportionately more of their income on food and energy than do higher income households. This means that the poor are hit the hardest by the inflation categories that “experts” tell us we should ignore.
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The rational for excluding food and energy costs from the “core” index is that these two items have a comparatively high degree of volatility, and I believe that this is a factually correct statement. Thus, the exclusion of food and energy costs from short-term monthly and possibly even quarterly measures of price inflation is arguably based on good reasoning. However, for anything other than these short time periods, the core index is not an accurate measure of price inflation, as food and energy expenditures are obviously significant.
Briggs,
Any idea why you and other Austrians are getting so sloppy with language? Price increase = inflation?
It’s a problem hammered into our minds from birth. I’ve had a very difficult time getting rid of the inflation = price increase thing. The real fact is, no one knows what the true rate of inflation is because the price change is an intermingling of both changes in money supply and changing consumer preferences. If someone told me they could separate the two and get real inflation, I’d call them a liar.
Taylor is right. But the others, Taylor? Who, where?
That’s great, just keep looking over here and see how this 60″ 3DTV dropped in price.
That’s because we have had a massive wave of innovation. It would be dropping even more without Fed intervention.
Far be it from me to defend government pronouncements of any kind, but these price increases are not necessarily due to inflation. Bernanke’s desperate attempts to inflate the currency may not have caused them; they might simply be the result of normal supply and demand fluctuations.
The inflation will come, no doubt, but it may well not have materialized yet.
Considering that there isn’t any major news of a food shortage nor is there any news of some catastrophe increasing food demand, it’s unlikely the supply-demand factor has much to do with it.
Bad wheat crop in Russia due to floods raised grain prices and meat prices by extension. But not by anywhere near as much as the spot prices reflect. That comes from speculators borrowing Bernanke’s money from the big banks and turning a blip into a bubble. Another wealth transfer from the poor to the ruling elite.
It always struck me that if you want a metric for inflation, to the extent you can get one, you should track a large basket of those goods that are in most universal and constant demand over time. Food and energy would seem to qualify, so this is probably why they don’t use them.
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