Sep 25 2007
Inflation Expectations too Low? You bet they are!
“Representative Barney Frank, the Massachusetts Democrat who chairs the panel, said in an e-mailed statement he was “pleased” with the cut. Frank called on Sept. 7 for a “meaningful” easing. Still, he said yesterday he was “surprised” the Fed continued to note concern about inflation.”
That sort of naivety displayed by Barney Frank is precisely what Vigilant Investors can and should plan around — as if official CPI really tells the full tale of inflation!
Maybe I am crazy but I think the BLS inflation and productivity numbers are way off. A large weight in the PPI and the CPI is technical productivity in the computer and electronics industries. Since technical productivity has risen by leaps and bounds, these industries have a heavy weight in the price statistics and rise much faster than more traditional industries(the bread and butter of US capitalism). I haven’t looked but all the financial industries may have this same bias. However I don’t believe this technical productivity i/7s translated into economic productivity. We have more and more paper pushing, more and more time spent waiting at the computer or cellphone and in the end people are working far harder and longer, 24/7, than the avg hours worked 20 years ago. This has biased our CPI downward and reduced the price deflator for GNP and thus increased productivity numbers. I dont know whether this is also true for other countries but probably so. Am I crazy? Please comment.
No doubt there are too low, for your reasons and more. For example, the way housing is calculated largely exempted to inflationary bubble there from being calculated. Financial assets are also exempted.
The problem is largely that CPI Is calculated with the purpose of justifying consumption focused economic schools of thought — the same ones that want to justify government and central bank induced spending to drive the economy this way or that. Hence, it focuses on tracking items through consumption lens vs. others that are nearly ignored, if not outright.