Re: BLS Release: For Most Americans Inflation Is Getting Worse, Not Better

On Oct 17, 3:04 pm, "John Galt" <whoisjohng...@xxxxxxxxxxxxxx> wrote:
"Islander" <nos...@xxxxxxxxxxx> wrote in message

news:I46dnZCmgZwWyovanZ2dnUVZ_qOknZ2d@xxxxxxxxxxxxxxxxx



Florida wrote:
http://www.huffingtonpost.com/hale-stewart/for-most-americans-inflat_...
The Huffington Post | October 17, 2007

Hale Stewart: For Most Americans Inflation Is Getting Worse, Not
Better

From Bloomberg:

"Prices paid by U.S. consumers rose more than forecast in
September as food and energy costs climbed, while core measures showed
inflation remains contained.
The 0.3 percent increase followed a 0.1 percent decline in August
prompted by falling oil prices, the Labor Department said today in
Washington. So-called core producer prices, which exclude fuel and
food costs, rose 0.2 percent for a second month in line with
forecasts.
With inflation under control, Federal Reserve policy makers have
leeway to consider cutting their benchmark rate again later this month
to keep the economy growing in the face of a deepening housing
recession. Fed Chairman Ben S. Bernanke this week reiterated the
central bank would "act as needed'' to foster sustainable growth along
with price stability."

That's right -- inflation is under control. Well, except for the
following prices from the agricultural and oil markets respectively.

Let's ignore the headline number and look at the following two
paragraphs from the BLS release:

"Consumer prices increased at a seasonally adjusted annual rate
(SAAR) of 1.0 percent in the third quarter of 2007, following
increases in the first and second quarters at annual rates of 4.7 and
5.2 percent, respectively. This brings the year-to-date annual rate to
3.6 percent and compares with an increase of 2.5 percent for all of
2006. The index for energy, which advanced at annual rates of 22.9 and
32.9 percent in the first two quarters, declined at a 14.8 percent
rate in the third quarter of 2007. Thus far this year, energy costs
have risen at an 11.7 percent SAAR after increasing 2.9 percent in all
of 2006. In the first nine months of 2007, petroleum-based energy
costs (energy commodities) advanced at a 20.6 percent rate and charges
for energy services (gas and electricity) increased at a 1.3 percent
rate. The food index rose at a 5.7 percent SAAR in the first nine
months of 2007 after advancing 2.1 percent in all of 2006. Grocery
store food prices increased at a 6.7 percent annual rate in the first
nine months of 2007, reflecting acceleration over the last year in
each of the six major groups. These increases ranged from annual rates
of 4.0 percent in the index for other food at home to 17.7 percent in
the index for dairy products. The CPI-U excluding food and energy
advanced at a 2.5 percent SAAR in the third quarter, following
increases at rates of 2.3 percent in each of the first two quarters of
2007. The advance at a 2.3 percent SAAR for the first nine months of
2007 compares with a 2.6 percent rise in all of 2006. The deceleration
largely reflects a smaller increase in the index for shelter and a
downturn in the index for apparel. Shelter costs, which rose 4.2
percent in all of 2006, have risen at a 3.2 percent annual rate in the
first nine months of 2007. The index for apparel, which last year
registered its first annual increase since 1997, has declined at an
annual rate of 1.7 percent thus far in 2007. The annual rates for
selected groups for the last seven and three-quarter years are shown
below."

So -- why am I focusing on these two paragraphs rather than the
headline number? I am personally having a really difficult time
believing the "headline" inflation number largely because my personal
experience just isn't jibing with an "inflation is benign" scenario.
Here's why. I go shopping every 4-5 days. Over the last year or so I
have seen chicken increase from about $4-$5 to $7-$8. Milk is now
almost $4/gallon when it use to be $2.99/gallon. Simply put, THE
NUMBERS JUST AREN'T ADDING UP. While I don't know what is wrong
exactly with the BLS' calculations and/or methodology, it simply isn't
tracking what I am seeing at the retail level. Now I realize that the
prices above are for food which isn't part of "core" inflation. THIS
ALSO ILLUSTRATES HOW INCREDIBLY STUPID THE FED'S RELIANCE ON "CORE"
INFLATION IS. Core inflation is a great measure if you don't consume
food or energy. FOR THAT SMALL MINORITY OF THE POPULATION THAT
ACTUALLY DOES CONSUME FOOD AND ENERGY, TOTAL INFLATION IS A HELL OF A
LOT MORE RELEVANT TO DAILY LIFE.

Let's look at three sentences from the first indented paragraph from
the BLS report:

"This brings the year-to-date annual rate [of total consumer
prices] to 3.6 percent and compares with an increase of 2.5 percent
for all of 2006.
Thus far this year, energy costs have risen at an 11.7 percent
SAAR after increasing 2.9 percent in all of 2006.
Grocery store food prices increased at a 6.7 percent annual rate
in the first nine months of 2007, reflecting acceleration over the
last year in each of the six major groups."

These three sentences -- which are part of the BLS report -- ARE NOT
REPORTED IN THE FINANCIAL PRESS. And they sure should be because they
show some serious price acceleration for goods we have to buy in
modern society.
__________

A comment from the web site:
"Thank you! Of course we all know our check is not going as far
as it has in the past. However it is good to see it in print, so that
we know that we are not alone in our concern about the future of our
families.
I feel the weight of the world every time I go to the market. That is
what the high prices are about, the American people footing the bill
for all of these foreign countries economy.
I remember the Great Jimmy Carter putting a freeze on prices in order
to give Americans more spending power. Little did we know the
juggernaut he was up against.
THE TEXAS REPUPLICAN CONGRESS PASSED 600 NEW LAWS THIS YEAR."
10/17/2007

I ran across this website not long ago and post it here solely to point
out what it claims are changes in how inflation is calculated.

http://www.shadowstats.com/cgi-bin/sgs/article/id=343

1. The Boskin/Greenspan agendum of the Bush I administration argued that
when one item in the fixed basket of goods became too expensive that a
consumer would substitute a less expensive item. Hamburger substituted
for steak?

I can't speak to specifics, but *in general*, the idea was that if Peter Pan
Crunchy went up by 10%, the consumer would recapture by substituting to the
supermarket store brand. This has large ramifications in certain areas, such
as clothing, where switching brand names to generic equivalents means a lot.

At any rate, this is a lively topic among economists discussing baskets of
goods, because the basket is supposed to reflect the most probable consumer
behavior or it's no good. So, in some fashion, the shift from the 1960s
steak-three-times-a-week to the 2000 behavior of chicken-three-times-a-week
needs to be accounted for in the basket, *somehow.* (And, its the "somehow"
that gets the economists arguing.)



2. Then, during the Clinton administration, arithmetic weighting of the
CPI components was changed to geometric weighting which gave lower weights
to items rising in price and higher weighting to items dropping in price.

That seems wrong. Geometric means are probably better to use than arithmetic
means, but it seems like the higher weight would go to the one rising.



3. Now, the current administration is toying with yet another change in
the weighting models which will further reduce the published figures.

4. In addition, the BLS reduces the cost of items that provide more
"pleasure" because of improvements.

5. Finally, increased costs of things that are federally mandated are
deducted.

All of this manipulation of the CPI results in substantial reductions in
what is published. The organization represented in this web site claims
that if inflation were calculated in the same way as it was in 1980 that
the actual current rate would be approximately 10%.

Perhaps, but the way it was done in 1980 was probably based on less
sophisticated basket-of-goods techniques. There's nothing wrong with
updating your methodology to more accurately reflect reality, OTOH, the net
of all those changes doesn't seem to have done so. When the CPI was
announced today, the CNBC talking heads kind of laughed at it on the grounds
that it didn't reflect the reality of what consumers were experiencing.

When the financial establishment starts laughing at the statistics...............

I appreciate your conversation with Islander; I posted this to get
the opinions of folks with experience in thinking about economics.
Thanks. And thanks for your final comment, which is about as clear an
indication of what's really happening as anything else. :(

JG




.

Relevant Pages
Loading