Inflation.. You Think?
February 21st, 2008 by Buck Woodford
Wednesday’s market news was dominated by a hot reading in the United States government’s monthly CPI report, and speculation about its effect on the FOMC’s interest rate reduction campaign.
As most readers know, I reside firmly in the “CPI is baloney” camp, although it is tough sharing the philosophy of a grown man sporting a mullet in 2008. (just kidding Fleck..).
There are many sound reasons for this stance. Hedonics is a big one, the method of calculating housing costs is another. Government CPI calculation is a widely criticized process (here and here) yet for some reason we continue to follow it. An old quote comes to mind:
“There are three kinds of lies: lies, damn lies, and statistics.”
It doesn’t require genius to realize that inflation is here in a big, big way. Simply look at charts of any commodity, especially oil and gold. Or glance at a sample of recent headlines:
Moral of the story for me: Know what the government’s numbers are (and the scheduled announcement dates) simply because other people will act on it in the market. But remember that the actual figures are more fiction than fact.
