Inflation: Not as low as you think (or as they are telling us)

[Ron]

http://www.cbsnews.com/8301-505144_162-57387655/inflation-not-as-low-as-you-think/

Surprising admission from the mainstream media

Forget the modest 3.1 percent rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.

[longeyes]

I don't think too many are really surprised.  You can't believe the Ministry of Truth.

[HankB]

I don't think too many are really surprised.  You can't believe the Ministry of Truth.

The surprise isn't in the number, the surprise is in the network's admission that the real number is higher than claimed.

As anyone who regularly shops for themselves and their household already knows.

[Blakenzy]

Nothing is as you are told it is. Government takes its lying very seriously. If it isn't a lie, it isn't an Official Statement.

[BridgeRunner]

Nothing is as you are told it is. Government takes its lying very seriously. If it isn't a lie, it isn't an Official Statement.

Wait wut?  What about our awesome "recovery"?

[longeyes]

The surprise isn't in the number, the surprise is in the network's admission that the real number is higher than claimed.

As anyone who regularly shops for themselves and their household already knows.

If they say 8 you can bet it is more.  My numbers show gold up 17 per cent in the last year.

[RoadKingLarry]

I've lost track, is it still Bush's fault?

[Blakenzy]

[longeyes]

Part of it is W.'s fault, yes, and Clinton's, and Bush the Elder's, and...follow it back to FDR and Wilson and beyond.

[Nick1911]

[Ron]

The "Misery Index" is actually higher now than when Reagan was elected over Carter.

So what is the true inflation rate?

Fortunately, the folks at the American Institute of Economic Research have resurrected the idea. Their Everyday Price Index (EPI) strips away the cost of big-ticket items, like homes and cars, and looks at the cost of things that consumers encounter on a daily or monthly basis, such as groceries, prescription medicine, and telephone and cable bills. By that measure, the Everyday Price Index shows inflation galloping ahead at an 8.1 percent annual rate, a reading that would put the current Misery Index at a Carter-like 16.4 percent — not a good recipe for re-election.

Averaging the CPI and the EPI gives us a rate of 5.6 percent, a number most New Yorkers, and probably most Americans, would consider on the mark.

By that estimate, the Obama Misery Index comes in at 13.9 percent, higher than that of any president up for re-election since Carter in 1980, but not too far above the 12.4 percent misery reading when Ronald Reagan ran in 1984.

http://www.nypost.com/p/news/national/price_clubbed_in_jRGGyS9wKfAKjxAs0bkVnO

[HankB]

When it comes to annual salary increases at my employer, inflation is low - average across the corporation this year is around 2%, which is up from last year's 1%. (Except for the executive conference, where the decision makers have to make do with a paltry 59%.)

[Jamie B]

The president alone does not shoulder the blame for inflation.

Poor economic policy and excessive spending at all levels of government have a part in this.

Congress especially share responsibility for not addressing issues other than by lip service.

[Monkeyleg]

No, Jamie, presidents don't shoulder the blame for high inflation, recessions, or low/no inflation and economic recoveries. But the media and other voices would have us believe they do. So, if Bush I and II were blamed for the economic problems on their watch, then Obama deserves blame on his.

Also, while he does not legislate, a president does push legislation, and Obama has pushed for many measures that have adversely affected the economy. The spending and the prospect of higher taxes are two major factors affecting our economy, and both lie in Obama's lap.

[birdman]

The president alone does not shoulder the blame for inflation.

Poor economic policy and excessive spending at all levels of government have a part in this.

Congress especially share responsibility for not addressing issues other than by lip service.

True, but the treasury IS controlled by the president, and when the treasury puts pressure on the fed to maintain treasury purchases, that can very easily affect money supply--which DOES cause inflation.

[seeker_two]

Don't just blame Bush....the entire GOP is at fault for this..

[Jamie B]

True, but the treasury IS controlled by the president, and when the treasury puts pressure on the fed to maintain treasury purchases, that can very easily affect money supply--which DOES cause inflation.

I don't believe that the interest rates have the effect on inflation that was once believed.

The FED recognized 2 years ago that further reductions in the discount rate had minimal impact on the economy, IIRC.

[birdman]

I don't believe that the interest rates have the effect on inflation that was once believed.

The FED recognized 2 years ago that further reductions in the discount rate had minimal impact on the economy, IIRC.

I didnt say interest rates (meaning in this case the fed discount rate) I meant the treasury purchases.  In order to keep treasury rates low (to prevent exploding debt) the fed buys them from commercial banks at low rates, crediting the sellers with dollars.  This increases the money supply.  While not the primary supply tool (that's the discount and reserve rates), this directly effets the base money amount.  This quantitative easing causes inflation, regardless of discount rate or reserve rate.  So it artificially keeps federal debt interest low (without the fed buying, the free market rate for the treasuries would be higher, and thus interest payments and associated debt would be much greater) to make govt debt more affordable, but effectively is inflating away the debt.

While the fed is "technically" independent, the treasury does put significant pressure on it, and can influence these types of decisions.  Continuous money expansion is good for banks (which do control the fed) especially when coupled with low discount rates, but has negative effects on consumers.

[makattak]

I didnt say interest rates (meaning in this case the fed discount rate) I meant the treasury purchases.  In order to keep treasury rates low (to prevent exploding debt) the fed buys them from commercial banks at low rates, crediting the sellers with dollars.  This increases the money supply.  While not the primary supply tool (that's the discount and reserve rates), this directly effets the base money amount.  This quantitative easing causes inflation, regardless of discount rate or reserve rate.  So it artificially keeps federal debt interest low (without the fed buying, the free market rate for the treasuries would be higher, and thus interest payments and associated debt would be much greater) to make govt debt more affordable, but effectively is inflating away the debt.

While the fed is "technically" independent, the treasury does put significant pressure on it, and can influence these types of decisions.  Continuous money expansion is good for banks (which do control the fed) especially when coupled with low discount rates, but has negative effects on consumers.

All of that was correct except that open market purchases (buying treasury debt) IS the primary tool for affecting the money supply.

Discount rate is mostly ineffective and the reserve rates are rarely used because they are SO effective on the money supply.

[Jamie B]

I didnt say interest rates (meaning in this case the fed discount rate) I meant the treasury purchases.  In order to keep treasury rates low (to prevent exploding debt) the fed buys them from commercial banks at low rates, crediting the sellers with dollars.  This increases the money supply.  While not the primary supply tool (that's the discount and reserve rates), this directly effets the base money amount.  This quantitative easing causes inflation, regardless of discount rate or reserve rate.  So it artificially keeps federal debt interest low (without the fed buying, the free market rate for the treasuries would be higher, and thus interest payments and associated debt would be much greater) to make govt debt more affordable, but effectively is inflating away the debt.

While the fed is "technically" independent, the treasury does put significant pressure on it, and can influence these types of decisions.  Continuous money expansion is good for banks (which do control the fed) especially when coupled with low discount rates, but has negative effects on consumers.

Somehow the brain reading and the fingers typing had some kind of disconnect.
Your assertions are correct.

[birdman]

All of that was correct except that open market purchases (buying treasury debt) IS the primary tool for affecting the money supply.

Discount rate is mostly ineffective and the reserve rates are rarely used because they are SO effective on the money supply.

What I meant by primary I meant by fractional change yielding effects.  If one buys 10% more treasuries, the money supply increases by 10% of that auctioned amount (given deficits about equal to 10-15% of money supply this would be about a 1% change).  If one decreased the reserve rate by 10% (for instance, from 10 to 9 percentage points, the money supply would increase by 10% of the money supply--or nearly a ten times larger effect for a similar percentage delta in action.

Now, there are issues with that calculation, as it is much easier to change the treasury purchase by 10-50% while very difficult to change the reserve or discount rate by a similar fraction.
I did not mean primary as in "the most direct way".

Note, in the above, % refers to a relative change, percentage points to an absolute value.