Posts filed under “Inflation”
I mentioned a new column on why Inflation is real the other day (here). But an incident today was so telling re: measuring inflation (an aneccdote, I admit), I felt I had to share.
Thanks to a fire in the NYC Subways, a business lunch got postponed. So a friend (AK from Bear Stearns) met me for lunch at one of our old favorite Chinese restaurants. Its a local place that’s cheap and authentic (although I prefer Mr. K’s).
We haven’t been there in nearly a year. Same owners, we order the same dishes we always did — we even get the same waitress at the counter we always used to. (Noodle/Dumpling soup for me, AK has Roast Pork).
When the we food arrives, we both look at each other. The portions are half what they typically were! Lots of rice, noodles, veggies — but the meat portions were at least a third smaller.
Pray tell: How does this smaller portions in Restaurants show up in BLS data ?
"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
THE WALL STREET JOURNAL, October 24, 2005