It is spouted far and wide by pundits and politicians that inflation is at record lows. Yet we see prices rising all around us.
At least part of the answer to this lies in how inflation is defined these days. Since the 1970s, then Fed chairman Arthur F. Burns (unrelated to Montgomery Burns of the Simpson fame) came up with a way to distract everyone away from day-to-day living-expense-inflation in order to allow the Fed to operate an extremely easy monetary policy.
The big idea was called “core inflation,” and it goes like this. Since the Fed has no control over food and energy, food and energy have nothing to do with the U.S. economy. Huh? Some economists say that food and energy are excluded because seasonal factors throw off the accuracy of the overall inflation rate. Unfortunately most consumers feel inflation day to day and month to month. Even so it is the most common statistic quoted when referring to inflation notwithstanding food and energy are the most influential factors that impact the average Jane and Joe American. This doesn’t seem to bother these economists.
That Mr. Burns was able to convince congress and the press as well as other economists of the value of this core inflation idea is reminiscent of an occurrence back in 1933 when a few robber barons got congress to go along with the creation of the Fed to begin with.
This core inflation operates like an invisibility cloak to ease the troubled minds of the masses in to thinking all is well. Baaaaaa! The only problem is that things are not well at all. Price hikes are slowly being felt in utilities and local governments and in magazines and newspapers as well as phone and cable services. This is accomplished in subtle ways like incrementally adding fees and incrementally cutting services.
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