Feb 02, 2011

Just The Facts Ma'am

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By: Jim West

Just the facts Ma'm (Warren Buffet)

In the 1960's police show Dragnet Joe Friday became known for the above quote when  he and his partner were interviewing folks to solve a crime and they would add in misinformation that clouded their ability to solve the crime. 

Last month the Fed released a report  which says "the annualized consumer price index excluding food and energy rose 0.6%, the lowest amount since records began in 1957. That is well below the Fed's informal inflation target of between 1.5% and 2%."

 However what are the facts ma'm?

 First off the Consumer Price Index (CPI) that is the "official standard" the Federal government uses  doesn't  include food and energy prices and these two categories have seen steady increases.  They use a term called the Core Index for their reported inflation numbers and this doesn't  reflect  what it costs you to run your household.  

 The FAO ( UN) international food index prices last month surpassed 2008 levels that sparked worldwide food riots.   This index has increased for the sixth month in a row. How about a second perspective. It was recently reported  that the Producer Price Index, measuring inflation at the producer level, rose 0.8% in November, its biggest gain since March. The increase was mostly due to a 2.1% increase in energy costs, including a 4.7% increase in the cost of gasoline, and rising food prices, including a 13.6% increase in the price of fresh fruit and melons. Over the past year the Producer Price Index is up 3.5%, which seems to already be above the Fed's stated comfort zone of 2%.

 For the past several months  the Fed has been making  the  case they believe prices are too low. The Fed wants more inflation -- for the stated reason that they believe it will stimulate the economy and eventually result in more employment and they  have embarked on a policy to do just that.