- Jun 3, 2009
- Reaction score
- Political Leaning
- Very Conservative
Robert P. Murphy said:There are several problems with the exclusive reliance on "core CPI" as a gauge of the tightness of monetary policy. First and most obvious, it is absurd to focus on the "core," which excludes food and energy prices. It is precisely these prices that are the most important for struggling households — and they are certainly not falling. According to the government's own figures, from September 2009 to September 2010, consumer food prices were up 1.4 percent, while consumer energy prices rose 5.4 percent.
Given that many households are either in financial distress or are terrified that they soon will be, is it really so surprising that consumers aren't spending gobs of money on things besides food and energy?
Another problem is that the Bureau of Labor Statistics can't very well document changes in product quality, which tend to mute price increases. To take an example offered by Silas Barta, the next time you open a cereal box, check out how flimsy the cardboard is; it was sturdier several years ago. I doubt that the government CPI figures take this sort of thing into account when telling us how weakly prices have responded to Bernanke's incredible bouts of money creation.
. . .
Besides nitpicking the construction of CPI data, there is the problem of focusing just on consumer prices in the first place. For example, according to the latest report of the Producer Price Index, in the last year prices for finished goods are up 4.0 percent, the prices for intermediate goods are up 5.6 percent, and prices for crude goods are up a whopping 20.3 percent.
But wait — there's more! According to economic theory, there's actually a very sensible reason to include asset prices when trying to determine the "cost of living." This is because most people don't want to live for a single day on milk and bread that they just bought at the grocery store. In principle an ideal price index would include prices for both present and future goods. As a convenient proxy, it makes sense to include asset prices when wondering whether monetary policy is causing the dollar to strengthen or weaken.
QE2 and the Alleged Deflation Threat - Robert P. Murphy - Mises Daily
Producer Price Index said:On a 12-month basis, the intermediate goods index
increased 5.6 percent for September, its tenth consecutive year-over-year rise.
Producer Price Index News Release text