Consumer Price Index: Bernanke Misses By 50%

This is some sort of joke, right?

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.

The gasoline index rose sharply in February, accounting for over 80 percent of the change in the all items index. The gasoline increase led to a 3.2 percent rise in the energy index despite a decline in the index for natural gas. The food index was unchanged in February, with the food at home index unchanged for the second month in a row as major grocery store food indexes were mixed.

But remember, nobody needs any food and especially any energy.  And while natural gas is diving, gasoline is going up faster.

The big table (Table 1) remains amusing; Rick Santelli was on CNBS with a very legitimate screed about the CPI, one that I wrote about extensively in Leverage.  Specifically, the weighting is only “valid” for the “average” consumer.  But of course incomes are rarely average.  A lower-income person uses an extraordinary amount of their income for food, shelter and energy compared to higher-income people.  This means that costs in those areas have a wildly disparate impact on poorer Americans, and the poorer you are the worse it is.

Then there’s hedonics.  Rick needs to use a better example; I like the television one since everyone can relate to it (we all have idiot boxes, right?)  The government claims that a LCD TV is “better” by a material amount — 70% in fact.  This is true, of course — a LCD TV does have a sharper picture, uses less energy and is physically smaller.  As such since the government says that a LCD TV is 70% “better” than a CRT one, if the price is 70% higher there is no “inflation” since you’re getting the same utility value for the money spent.

That would be a decent argument if you could still choose to buy a CRT TV!  But you can’t because they’re not made any more.  Your options are to spend 70% or get nothing, and yet this is not called “inflation.”

If you want to watch TV and yours just broke, I suspect you disagree.

There’s a number of other interesting claims in the table too.  For example, “food away from home” is listed as up 3.1%.  One wonders what’s going on there as I’ve noticed both price increases and negative changes in quality and quantity in eateries that are vastly more than 3% in the last year.  When you actually notice it the change is typically somewhere between 10-20% — consider that a 3% change in a $20 check is sixty cents.  It’s highly unlikely that you would note the cost of eating out going up at that rate, or the quality of the food going down — unless it was dramatically more than 3%.

There are other problems for lower-income citizens as well.  Water, sewer and trash collection services are up (according to the table) 4.7% over the last year.  That’s non-trivial.  Fuel oil of course is up big (as is gasoline, up 12%.)  Apparel is up sharply as well, as is transportation, with the largest cost increases coming in the form of fuel.

In the final analysis however the report did not surprise, and the market pretty-much ignored it.  Then again the TNX (10 year Treasury yield) says “no mas” on these figures as it continues its march higher, now over 2.3% and up 2.2% on the day.

May you live in interesting times.

The Market-Ticker

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