Posted on 03/01/2012 9:07:04 AM PST by SeekAndFind
Ben Bernanke claims not to worry over the inflationary impact of rising gas prices. In testimony to the House Financial Services Committee yesterday, the Fed chair said that gas price hikes would temporarily bump inflation upward and reduce disposable income, but that the impact would not be lasting, nor deflect from the long-term trend of stable inflation rates:
Federal Reserve Chairman Ben Bernanke downplayed the long-term consequences of high gasoline prices on Wednesday, while urging lawmakers to establish a careful plan to restore the country’s fiscal sustainability. …
The economy will likely see short-term inflation from higher gasoline prices, which could reduce consumers’ purchasing power, Bernanke said, but maintained that the Fed still expected to see inflation remain subdued in the longer term.
How subdued is inflation? The current official estimate has the annualized inflation rate at 3.1%. However, CBS reports that a different measure of inflation puts the rate much higher:
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.
The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don’t look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans’ typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.
The institute contends that to get a good read on inflation’s “sticker shock” effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move. …
Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government’s inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.
The analysis at AIER appears robust and scholarly. They note that the CPI and their EPI (Everyday Price Index) remained closely correlative until the bubble expansion in the mid-2000s. The peak of the disconnect hit in 2008, but the two have been significantly unlinked since. On a year-by-year basis, this chart shows the contrast:
Normally, changing measures means adopting a new metric with little history. In this case, though, AEIR shows that the reliance on relatively rare big-ticket purchases in the CPI does not reflect the actual impact on consumers. The EPI reflects more accurately the consistent experience of consumers in the marketplace, where escalating fuel costs raise prices on goods across most distribution channels, especially at the grocery store.
The US government will not be adopting the EPI any time soon, of course. The Obama administration should be paying close attention to it, though. Consumers who see their buying power rapidly eroding will not respond to claims of having mastered an economic recovery — a dynamic we have already seen, even before higher gas prices have begun to have a big impact.
Inflation is only high if you buy the stuff you need; stuff like gasoline, food, medical services and insurance, municipal utilities, etc.
On the other hand, inflation has been negative on the stuff you’ve already bought; stuff like houses. It’s also been rather low on luxuries like private jet travel, Tiffany jewelry, designer clothing, IPads, etc. If most of your shopping is for luxuries, you’re inclined to believe Bernanke and the Bureau of Labor Statistics.
Bernanke doesn’t have a clue. He’s making it up as he goes along.
Nothing to see here, move on
RE: Inflation is only high if you buy the stuff you need; stuff like gasoline, food, medical services and insurance, municipal utilities, etc.
Great, don’t eat, travel, feel cold or get sick and you’ll be all set /s
Actually, he does. He and DC pols know darn well their 'official' statistics are meant solely to hoodwink the populace.
Inflation? What inflation? /s
I went to the store the other day to get fixin’s for hamburgers.
An eight pack of buns was $2.69. Tad high I thought.
I think Bernanke is doing his level best at looking at things from the inside and resisting the urge to commit suicide.
He knows the math doesn’t add up, and now with Europe going backdoor QE3 that inflation is going to get even worse.
What’s telling is looking at the Oil to Gold ratio. Since the 1940’s, an ounce of gold has been able to purchase, on average, about 16 barrels of oil. Divide the current price of a barrel of oil into the spot price of gold, and you come to find out the oil companies have done a pretty good job keeping a lid on prices, despite all of the regulatory costs imposed on them by all of the various governments.
Today’s spot oil: 108.07
Today’s spot gold: 1717
1717/108 = 15.89 barrels/ounce gold.
This the same as what it was when all oil was purchased by gold.
When people freak out about the rising cost of a barrel of oil, they blame the oil company.
They ought to be blaming Treasury and the Federal Reserve.
just filled up at $4/gal.
thats not a small deal
I find it very curious and slightly suspicious that the once-mighty US Government has nothing comparable. Could it be they don't want us to know how really, really bad it is out there?
BS alert!!!!
It is clear that Bernanke drinks his own bathwater and doesn't have a clue about economics!!
I wonder how high it would be if they still calculated it the way they did back in 1978, with a fixed basket of goods and services? Closer to 12% I would speculate.
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