Home 2021 The Fed’s Inflation Gauges Distort Real Inflation

The Fed’s Inflation Gauges Distort Real Inflation

by Paul Ebeling

#Fed #inflation

If you are a believer in the doctrine that inflation is good, then you should be overjoyed when you receive a higher electric bill, it is included in the Fed’s housing category.” — Paul Ebeling

After a series of financial panics in the late 1800’s and early 1900’s, it was decided the US monetary system could no longer be left to the vagaries of market forces.

The Big Q: What was the political, bureaucratic and banking solution to this perceived problem?

The Big A: Central control.

The Federal Reserve Bank was legislated into existence on 23 December 1913.

The Federal Reserve Act established 3 objectives: maximizing employment, stabilizing prices, and moderating long-term interest rates.

And now 108 yrs after its creation, consumer prices are about 31X higher than what they were in Y 1913. This pattern has repeated itself across the world’s economies both established and emerging.

Prior to the creation of the Fed, the market was doing a pretty good job of stabilizing prices all by itself.

The public was duped with that old line of “trust us, we’re from Washington we know best.”

The reality has been really different.

The creation of central banks and the abolition of the gold standard handed control of the monetary system to politicians, bankers and academics, many incompetent.

Look at the US CPI chart from Y 1775 and see that after Y 1940, the central banker commitment to produce inflation made a mockery of the price stability objective. Year after year prices increased.

As the chart shows, inflation has been our constant companion for the last eight decades.

We have only ever known inflation. The central bankers have indoctrinated us into believing rising prices are good for us.

And while our incomes and assets rose faster than inflation, people never questioned the doctrine. The, including me and everyone I know, bought and borrowed into the ‘inflation is good’ doctrine.

The concept of annually indexed incomes gave rise to the term ‘bracket creep’.

Rising income levels push wage and salary earners into higher tax brackets, delivering more tax dollars to our spendthrift politicians.

Politicians want inflation, not because it is good for The People, but it is good for them and their barrels of pork.

Central bankers know who butters their bread, and they are determined to give us inflation, like it or not.

CPI and PCE are the 2 measures of Inflation and Fed policy.

The Bureau of Economic Analysis’ (BEA) Core Personal Consumption Expenditures Chain-type Price Index for December, released last Friday, shows that core inflation is below the Fed’s 2% long-term target at 1.45%. The December Core Consumer Price Index release is higher at 1.62%. The Fed is on record as using Core PCE data as its primary inflation gauge. The exclude food and energy.

In the real world, we cannot exclude food and energy from our monthly expenses. The volatility of these 2 Key expense categories, especially energy, often obscures the underlying trend according to the policy makers.

The volatile price of gasoline explains why so many people are confused by the exclusion of food and energy from core measures of inflation.

The chart of gasoline prices below is based on the latest weekly data from the Energy Information Administration.

And guess what, Mr. Biden wants to drive the price of fuel higher which will in turn drive up the price of food.

Have a healthy week, Keep the Faith!

You may also like

logo-white

Your Trusted Source for Capital Markets & Related News

Latest Articles

© 2024 LiveTradingNews.com – For The Traders, By The Traders – All Right Reserved.

The information contained on this website shall not be construed as (i) an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities or services, (ii) investment, legal, business or tax advice or an offer to provide such advice, or (iii) a basis for making any investment decision. An offering may only be made upon a qualified investor’s receipt not via this website of formal materials from the Knightsbridge an offering memorandum and subscription documentation (“offering materials”). In the case of any inconsistency between the information on this website and any such offering materials, the offering materials shall control. Securities shall not be offered or sold in any jurisdiction in which such offer or sale would be unlawful unless the requirements of the applicable laws of such jurisdiction have been satisfied. Any decision to invest in securities must be based solely upon the information set forth in the applicable offering materials, which should be read carefully by qualified investors prior to investing. An investment with Knightsbridge is not suitable or desirable for all investors; investors may lose all or a portion of the capital invested. Investors may be required to bear the financial risks of an investment for an indefinite period of time. Qualified investors are urged to consult with their own legal, financial and tax advisors before making any investment. Knightsbridge is a private investment firm that offers investment services to Qualified Investors, Members and Institutions ONLY. Qualified Investors are defined as individuals who have met those Qualifications in the relevant jurisdictions. Members are defined as individuals who have been accepted into the Knightsbridge membership program. Institutions are defined as entities such as banks, pension funds, and hedge funds. If you are not a Qualified Investor, Member or Institution, you are not eligible to invest with Knightsbridge. All investments involve risk, and there is no guarantee of profit. You may lose some or all of your investment. Past performance is not indicative of future results. Knightsbridge is not a registered investment advisor, and this disclaimer should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions. By accessing this website, you agree to the terms of this disclaimer. Thank you for your interest in Knightsbridge.