WSJ calls BS on core CPI
We pause, in what is too often a chronicle of economic idiocy, if not illiteracy, to bring what is genuinely good news.
It comes on the front page of the Wall Street Journal's markets section, where reporters Mark Gongloff and Scott Patterson declare simply, boldly…
Many economists and Federal Reserve officials like to dismiss energy
and food prices when reading inflation statistics because the two
sectors are volatile. But it is time to dismiss that practice.
The column was published hours before the release of this morning's CPI report, which said both the "headline" inflation rate and the "core" rate excluding food and energy were flat last month. Presumably that will give the Fed-heads a clear conscience as they slash interest rates next week by 75 or even 100 basis points.
The usual justification, of course, for stripping food and energy out of CPI is that they're "volatile." But as the WSJ reporters point out:
Yes, food and energy prices have been volatile in the
past, but so has the price of watches. Jewelry and watch prices swung
wildly last year, with monthly moves in a range of down 2% to up 3.1%.
Baby clothing also is on a wild ride, swinging between monthly gains of
1.2% and monthly declines of 1.8% in the past year. Should economists
strip that out when measuring inflation?
"It makes more sense to have a statistical definition
of core inflation," says Lehman Brothers Holdings economist Ethan
Harris, rather "than an arbitrary designation of all food and energy as
The Federal Reserve Bank of Cleveland tries to account
for all of the volatility in consumer prices — not just food and
energy — with a measure called a "trimmed mean" inflation index. It
was up 3% in January, more than "core" measures of inflation that
ignore just food and energy.
These measures should come down as the economy slows
and if the oil-price bubble bursts. For now, let's just tell it like it
is: Inflation is on the rise and energy and food have a lot to do with
I'm not too sure those measures will come down as the economy slows and even if oil pulls back to, say, $90. But if it's a more honest measure that'll shut up the idiots on CNBC, I'm all for it.