Posts filed under “Inflation”

Recapturing Lost Purchasing Power?

I don’t have an opinion (either way) on Greg Ip, the WSJ reporter who covers the Fed.

But I have to call this sentence into question:

"Cautious employers put the brakes on hiring in October, producing the second straight month of weak job gains. But workers recaptured some of their lost purchasing power as wages rose at the fastest pace in two years."

I have to take issue with that description; As we have noted repeatedly, REAL Wages and Salaries — i.e., adjusted for inflation — were a negative -2.3% in the third quarter.

Yes, salaries went up on Q3 — but not nearly as fast as prices went up. In other words,  workers LOST additional purchasing power. They didn’t recapture anything.

Anytime the phrase "Purchasing Power" is used, it is referring to REAL wages. I have also seen it used to reference after tax wages (inflation adjusted or not) — but since there wasn’t any change in Tax policy in Q3, this definition is irrelevant to the present discussion.


Any thoughts on this? Am I missing something here?

Hiring Was Cautious in October
Job Gains Were Weak,But Workers’ Wages Rose At Fastest Pace in 2 Years
THE WALL STREET JOURNAL, November 5, 2005; Page A3

Category: Economy, Inflation

Economists React to Fed

Category: Economy, Fixed Income/Interest Rates, Inflation

Parsing the FOMC Statement

Category: Economy, Inflation

Construction Costs Rising

Category: Inflation

2/3rds of Industrial Bond Market = Junk

Category: Commodities, Inflation

Chinese Inflation? (Not what you think)

Category: Inflation

The Core Inflation Lobby

Category: Inflation

New Fed Chair: Ben Bernanke

Category: Economy, Inflation, Politics

The Unpleasant Truth About Inflation

Category: Inflation

The Inflation Evil That Lurks

Hey, guess what? More mainstream media discovery that Inflation is lurking! Yesterday, it was the NYT, today, the WSJ:

"A specter from the past has been haunting the stock market lately, and,
as with most specters, the question is whether this one is mostly real
or mostly imaginary.

The specter is inflation, and until recently, many investors thought it
was dead and gone. Lately, if you believe the Federal Reserve, it isn’t
exactly ba-a-a-a-ck, but it is lurking. The Fed’s fear of inflation,
together with its clear intention to keep raising U.S. short-term
interest rates to keep inflation in check, is the main thing that has
prevented the much-awaited fourth-quarter stock rally from commencing . . .

A few weeks ago, I gave Professor James Hamilton grief over his 45 year chart of the 12 month change in CPI (1960 – 2005). The very long chart, IMHO, makes inflation look more modest versus its long history than say a 5 year chart would.

Indeed, the impact of any longer term charts is that they make major events look like ripples; You can barely see the 1987 crash on a long SPX chart, and even 9/11 is hard to spot on a 10 year Nasdaq chart.

Today’s WSJ also uses a long term chart — 35 years of CPI and Core CPI.  It presents a case that the core underreports inflation. Note that even during the late 1970s peak of CPI, the Core rate tracked the overall index; In 1972-74, however, the Core lagged the CPI appreciably.

That lag is very analogous to the present BLS reporting, and in my opinion, why the Fed is fighting inflation so aggressively.

Note: I modified the WSJ chart, zooming in on the two periods:<spacer>

click for larger chart

Chart courtesy of WSJ


The entire article is worth reading; I have more excerpts, and the original chart, after the jump.



Specter of Inflation Haunts Dow
While Waiting for Fed’s Fears To Subside, Investors Pull Back, Imperiling an Anticipated Rally

Read More

Category: Financial Press, Inflation