Money Illusions (Inflation is back.)

Wall Street Journal ^ | 17 December 2007 | Editorial Staff

[shrinkermd]

Groucho Marx once asked, "Who are you going to believe, me or your own eyes?" Too bad Groucho doesn't work at either the Federal Reserve or on Wall Street, where economists have been predicting that slower economic growth would lead to a slowdown in inflation. They should have believed their own eyes.

As any American who has shopped for groceries or gasoline can tell you, prices are rising. That was confirmed last Friday in the official figures for November, with overall consumer prices jumping 0.8% from a month earlier. That was the largest monthly gain in two years, and 4.3% higher than a year ago. The report for producer prices was equally as alarming a day earlier, rising 3.2%. The producer price index is up 7.7% in the past 12 months, on a seasonally adjusted basis.

Some analysts continue to ignore all this and focus on so-called "core" inflation, which excludes food and energy. That is cold comfort to Americans who devote increasingly larger chunks of their monthly budget to -- food and energy. One lesson of the past few years is that relying too much on core inflation data, as the Fed has done until recently, can be a dangerous mistake. We couldn't help but notice that former Fed Chairman Alan Greenspan, a longtime "core" watcher, was quoted last week as saying it is now a less reliable guide to monetary policy.

[Southack]

"As any American who has shopped for groceries or gasoline can tell you, prices are rising."

What about prices for homes?

[Perdogg]

gas prices have already started to retreat. I don’t see an overall trend.

[Busywhiskers]

I would say that concentrating on core inflation has worked pretty well since 1980, so why change.

[cinives]

Because the calculation of core inflation changed since 1980.

[Greg F]

Inflation is more individual than the “core” number indicates. If you have a long commute by car and food is not a minor portion of your budget you face major inflation. If you take a train to work and make a high enough income that food is not a major expense then you have less inflationary impact.

[NY.SS-Bar9]

But but... I thought if we converted our food to fuel, all would be right with the world.

[Busywhiskers]

The principal behind managing inflation by concentrating on core inflation has not changed. The tools may get calibrated on occasion.

[Nephi]

Thanks to government welfare for ethanol, milk has gone up by more than a dollar a gallon and cheese, geez, I can’t believe how much cheese is now.

Meanwhile, how many different fuel formulas are still bottlenecking gasoline refineries?

[newzjunkey]

"Who are you going to believe, me or your own eyes?"

Shouldn't it read, "your own LYING eyes?"

[PGR88]

It is greatly in the Politicians’ interest to report low inflation. Reduced COLA increases, lower interest rates on our national debt and better overall PR. I would love to see a competing, private estimate of inflation.

[newzjunkey]

Generally people aren’t buying homes in winter.

[vietvet67]

http://www.shadowstats.com/cgi-bin/sgs/data

[mr_hammer]

Household Budget
Family of Four (Stay at Home Mom)
Living in Lake County, Ohio
Residence - 1700 sq ft home / 2 cars

Home Ownership - Monthly Expenses

$ 808.00 - Monthly House Payment / $135,000.00 Bank Note / 30 Year / 6% Fixed
$ 166.00 - Property Taxes
$ 250.00 - Phones, Cable Access for the Web (Needed for school)
$ 175.00 - Utilities (Heat, Electricity and Water)
$ 200.00 - Basic Maintenance and Repairs - Paint, Lawncare, Plumbing and Electrical - ($2400.00 Annually)
$ 25.00 - Home Owners Insurance

Insurance of Household Occupants’ - Monthly Expenses

$1300.00 - Health Insurance / Family of four / U.S. Average
$ 22.00 - $250K Life Insurance, Dad
$ 22.00 - $250K Life Insurance, Mom

Auto - Monthly Expenses

$ 350.00 - 36 Month Auto Lease No.1
$ 200.00 - 36 Month Auto Lease No.2
$ 110.00 - Auto Insurance (NO TEEN DRIVERS!)
$ 70.00 - Tags, Fees and Maintenance - one oil change per month
$ 350.00 - Fuel

Food & Clothing– Monthly Expenses

$1250.00 – Approx.

Savings – Monthly Basis (Note; these savings do not even come close to what is actually needed)

$ 200.00 - Retirement Account
$ 100.00 - College Fund Account No. 1
$ 100.00 - College Fund Account No. 2
$ 400.00

Additional Items - Monthly
$ 00.00 - Postage
$ 00.00 - Home Modernization or Additions
$ 00.00 - Magazine or Paper Subscriptions
$ 00.00 - Savings for Auto and Furniture Replacement
$ 00.00 - Private (Parochial) School
$ 00.00 - Alcohol & Cigarettes
$ 00.00 - Club Dues & Fees
$ 00.00 - Second Mortgage
$ 00.00 - Caring for aged or sick family member
$ 00.00 – Hobbies, Tickets to Pro-Ball Games
$ 00.00 - Haircuts
$ 00.00 - EMERGENCIES
$ 00.00 - Disability Insurance for Dad and Mom
$ 125.00 - Min. Paymt. - Unsecured Credit Card ($5000.00) Balance
$ 200.00 - Mom & Dad go out to dinner 2 nights a month (Dinner & Sitter)
$ 100.00 - Prescription Drugs, Corrective Lens, Braces for kids, Doctor Visit Co-pays
$ 100.00 - School Supplies and Extra Curricular Activity Costs (Two Kids)
$ 100.00 - Holiday Savings Account (Christmas Gifts, Annually)
$ 100.00 - Birthday, Weddings, First Communion, Bar Mitzvah and Anniversary Gifts
$ 250.00 - Vacation Savings / one week on the Atlantic Coast $3K
$ 75.00 - Church and Charitable Giving

$ 6740.00 x 12 months = $80,880.00 Yearly Budget Required after taxes.

[jiggyboy]

What about prices for homes?

"The index for housing increased 0.4 percent in November, following a 0.2 percent rise in October. Each of the three major housing groups contributed to the larger advance. The index for shelter, which rose 0.1 percent in October, increased 0.3 percent in November.

"Within shelter, the indexes for rent and for owners' equivalent rent increased 0.4 and 0.3 percent, respectively, while the index for lodging away from home decreased 0.2 percent."

That said, at least one economic genius here on FR at least pretends to believe that inflation doesn't matter if you're not buying that particular thing at that particular time.

Conclusive proof that inflation is out of control is that Larry Kudlow, the one-man Ministry of Information for the business world, says it's actally decreasing.

[mysterio]

Yeah, gas prices around here are “retreating” back to $3+ a gallon.

[dakine]

$80k after taxes?

That fictional person is ‘rich’ by American standards....

[jiggyboy]

at least one economic genius here on FR at least pretends to believe that inflation doesn't matter if you're not buying that particular thing at that particular time.

BTW that wasn't directed at you. The nemesis I'm alluding to will no doubt be here to drool out some of his wisdom and personal abuse soon enough.

[RightWhale]

Gold is still stuck about $800.
Oil is still stuck about $90.
Don’t know what to do with all this excess money supply.

[mr_hammer]

What is rich?

The person above really has no savings for retirement, nor a pension and will only have a fraction saved for college...that his kids will require.

again, what is rich? I don’t know anymore.