For Most Americans Inflation Is Getting Worse, Not Better

From Bloomberg:

Prices paid by U.S. consumers rose more than forecast in September as food and energy costs climbed, while core measures showed inflation remains contained.

The 0.3 percent increase followed a 0.1 percent decline in August prompted by falling oil prices, the Labor Department said today in Washington. So-called core producer prices, which exclude fuel and food costs, rose 0.2 percent for a second month in line with forecasts.

With inflation under control, Federal Reserve policy makers have leeway to consider cutting their benchmark rate again later this month to keep the economy growing in the face of a deepening housing recession. Fed Chairman Ben S. Bernanke this week reiterated the central bank would "act as needed'' to foster sustainable growth along with price stability.

That's right -- inflation is under control. Well, except for the following prices from the agricultural and oil markets respectively.

Let's ignore the headline number and look at the following two paragraphs from the BLS release:

Consumer prices increased at a seasonally adjusted annual rate (SAAR) of 1.0 percent in the third quarter of 2007, following increases in the first and second quarters at annual rates of 4.7 and 5.2 percent, respectively. This brings the year-to-date annual rate to 3.6 percent and compares with an increase of 2.5 percent for all of 2006. The index for energy, which advanced at annual rates of 22.9 and 32.9 percent in the first two quarters, declined at a 14.8 percent rate in the third quarter of 2007. Thus far this year, energy costs have risen at an 11.7 percent SAAR after increasing 2.9 percent in all of 2006. In the first nine months of 2007, petroleum-based energy costs (energy commodities) advanced at a 20.6 percent rate and charges for energy services (gas and electricity) increased at a 1.3 percent rate. The food index rose at a 5.7 percent SAAR in the first nine months of 2007 after advancing 2.1 percent in all of 2006. Grocery store food prices increased at a 6.7 percent annual rate in the first nine months of 2007, reflecting acceleration over the last year in each of the six major groups. These increases ranged from annual rates of 4.0 percent in the index for other food at home to 17.7 percent in the index for dairy products. The CPI-U excluding food and energy advanced at a 2.5 percent SAAR in the third quarter, following increases at rates of 2.3 percent in each of the first two quarters of 2007. The advance at a 2.3 percent SAAR for the first nine months of 2007 compares with a 2.6 percent rise in all of 2006. The deceleration largely reflects a smaller increase in the index for shelter and a downturn in the index for apparel. Shelter costs, which rose 4.2 percent in all of 2006, have risen at a 3.2 percent annual rate in the first nine months of 2007. The index for apparel, which last year registered its first annual increase since 1997, has declined at an annual rate of 1.7 percent thus far in 2007. The annual rates for selected groups for the last seven and three-quarter years are shown below.

So -- why am I focusing on these two paragraphs rather than the headline number? I am personally having a really difficult time believing the "headline" inflation number largely because my personal experience just isn't jibing with an "inflation is benign" scenario. Here's why. I go shopping every 4-5 days. Over the last year or so I have seen chicken increase from about $4-$5 to $7-$8. Milk is now almost $4/gallon when it use to be $2.99/gallon. Simply put, the numbers just aren't adding up. While I don't know what is wrong exactly with the BLS' calculations and/or methodology, it simply isn't tracking what I am seeing at the retail level. Now I realize that the prices above are for food which isn't part of "core" inflation. This also illustrates how incredibly stupid the Fed's reliance on "core" inflation is. Core inflation is a great measure if you don't consume food or energy. For that small minority of the population that actually does consume food and energy, total inflation is a hell of a lot more relevant to daily life.

Let's look at three sentences from the first indented paragraph from the BLS report:

This brings the year-to-date annual rate [of total consumer prices] to 3.6 percent and compares with an increase of 2.5 percent for all of 2006.

Thus far this year, energy costs have risen at an 11.7 percent SAAR after increasing 2.9 percent in all of 2006.

Grocery store food prices increased at a 6.7 percent annual rate in the first nine months of 2007, reflecting acceleration over the last year in each of the six major groups.

These three sentences -- which are part of the BLS report -- are not reported in the financial press. And they sure should be because they show some serious price acceleration for goods we have to buy in modern society.

Comments

[Imhotep]

So what your saying is that bush and his neo-con warmongers have a vested interest in keeping the Middle East in turmoil because they have a large ownership stake in oil? Peace

[jvarga]

Yeah I definitely notice inflation. In particular, at the grocery store, my electric bill and my cable bill, in that order.

[Pdubya]

GUNS or BUTTER, those on the Hill that divide America by cloaking the good of the people with partisanship, through lobby insterests, will bankcrupt this country through the military industrial complex or healthcare or any other big business that knocks on either partys' doors. We need tort and lobby reform and a restoration of representative government. Take out the middlemen!

We pay the tax, the Fed borrows against it on a faceless dollar, gives relief to foreign interests via low or no tarrifs, our jobs go elsewhere, wall street gets rich, the middle class shrinks, *poof*, there goes our country.

and we bicker over parties?

vote kucinich or ron paul.

www.ronpaul2008.com

[metamorphosis]

Glad to see the Paul fans notice Kucinich as well. We could do a lot worse than a Kucinich/Paul administration. Dennis might even get Paul to back off some of his excessive opinions and come back down where most of America is, solidly on the left. Too bad none of them vote.

[Shortyfuse]

Thank you!
Of course we all know our check is not going as far as it has in the past. However it is good to see it in print, so that we know that we are not alone in our concern about the future of our families.
I feel the weight of the world every time I go to the market. That is what the high prices are about, the American people footing the bill for all of these foreign countries economy.
I remember the Great Jimmy Carter putting a freeze on prices in order to give Americans more spending power. Little did we know the juggernaut he was up against.

THE TEXAS REPUPLICAN CONGRESS PASSED 600 NEW LAWS THIS YEAR.

[dleonard123]

Um, that was Richard Nixon that established a price freeze and any economist will tell you that price controls never work. Never have, never will.

[dadw5boys]

CARTERS DID.