More Tinkering With Official Price Statistics
The WSJ reports (HT2EPJ):
The inflation gauge tracked most closely by central bank policymakers will no longer exclude restaurant prices starting next month. The government plans to add purchased meals and beverages into the “core” inflation calculation — the one that excludes other food and energy costs — when it releases comprehensive revisions to its data at the end of July.
Do we really need to read any further? Here is how I view the world, at least at this stage of my life: I don’t really need to read whatever the government economists say is the official reason for this. There might even be compelling reasons for making the definitional adjustment.
But what I refuse to believe is that this change in how the government measures price inflation just so happens to be rolled out soon after the Fed has doubled its balance sheet.
I am anxious to see the CPI report (for May prices) next week; as readers of Free Advice know, the non-seasonally adjusted CPI has shown 4.3% annualized growth from Dec 08 to April 09. This has happened when everyone is threatening “deflation” as the one thing that may plunge us back into the Great Depression II.
Other economists have pooh-poohed my cynicism, because they believe it would be hard for the government economists to completely change an index method. In other words, it would be too blatant.
OK that’s fine, the trick then is to simply come up with a new concept, and then have government officials start “targeting” that measure. Then the media eventually reports on just that (new) measure, and nobody ever remembers what “non-seasonally adjusted CPI” even means. Because now it’s “core inflation” that the Fed tells us is the real thing to worry about.
One last thing: Just to make sure the situation is as absurd as possible, does anyone in the class know what things they take out of overall inflation, in order to get “core inflation”–which is what more and more financial stories now report?
(That’s right kids, food and energy. I mean, that makes sense, right? If you want to know what the “core” prices are doing, you probably wouldn’t worry about how much food and energy cost. You could safely drop those from the measurement.)
