Friday, August 8, 2008

Inflation, Revisited

Earlier, I wrote an article about how "core inflation" numbers understate real inflation. See

http://willworkforjustice.blogspot.com/2008/07/real-inflation-trimmed-mean-pce.html

T. Rowe Price just published an article in the "T Rowe Price Report" supporting my argument that "core" inflation is a fallacious statistic. See Alan Levenson, "Food, Energy Costs Spur Inflation Fears." No link available, as far as I can see right now, but here are some snippets:

Indeed, the CPI posted a year-to-year inflation rate of 4.9% in June...in contrast, inflation in the so-called "core" CPI, which excludes food and energy, was [recorded as only] 2.4%...higher inflation will become the most potent threat to growth.

In other words, "core" CPI is not accurate, as I explained earlier.

An interesting tidbit: Mr. Levenson said in 2007 he believes the Fed Reserve will keep rates steady all year; however, it sounds like the Fed needs to raise rates to combat inflation.

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