Prices rising despite low inflation rate (Key indicators questioned)

[kysrsoze]

At the same time the federal government is reporting inflation at rock-bottom levels, the cost of medical care, tuition and housing have shot up. From gasoline to coffee to gold, commodity prices are soaring to heights not seen in years.

"We're rewriting history," said Chicago Board of Trade veteran Jacob Morowitz, who has watched soybean prices double since last March. "You have a market in never-never land."

Yet the Fed, along with many mainstream economists, says inflation is no worry at all. Last week, Chicago Fed President Michael Moskow assured a hometown audience that inflation would remain low again this year. "Concerns are premature," he told a business group. "Inflation rates are unlikely to increase significantly."

The difference between inflation as measured by the Fed and the inflation everyday consumers experience is prompting a re-evaluation of how the nation assesses this critical phenomenon. Some claim the federal government for years has systematically understated inflation, thus missing a gradual but far-reaching shift in the global economy.


http://www.chicagotribune.com/business/chi-0403280352mar28,1,3606471.story?coll=chi-business-hed


Of course we have inflation - the cost of everything but borrowing has skyrocketed.

[Cobalt Violet]

1. Low inflation my a$$!

Everything I spend money on has gone up and up and up. Everything! Not just me but everyone I know.

[keithyboy]

23. Said this months ago. They will say inflation is low but working families

know the real deal. If I use gasoline, heating, telephone, food, and public transportation as an indicator, the true rate of inflation over this time in 2000 is about 32%. If you add housing and include the low interest rates it comes to about 27%

[yardwork]

2. High oil prices will guarantee that everything else rises in price.

It takes a lot of energy to make steel. Trucks are made of steel. Trucks run on gas. Trucks move everything that America buys and sells.

[randr]

3. Of course they are underestimating inflation

Inflation is the result of increased national debt. The further we go into debt the worse inflation rears it's head. Anyone who does not know that prices are climbing out of control must do their shopping with the Bush crowd. Just as any truth that may upset the *'s cart is denied, we can expect that this will not hit the radar until after the election.

[Barkley]

4. The BLS measures inflation w/ the CPI, what index does the Fed use?

The Bureau of Labor Statistics estimates the CPI every
month using a sample from about 50 cities and 400 goods and services.

Gasoline is just one of about 400 product prices measured; its impact on the CPI might be cancelled out or mitigated by constant or falling prices of other 400 consumer goods.

The CPI also doesn't account for new product prices or the true costs of defective products.

Last year, I had my students calculate their own CPI (College Price Index) from the cities they visited during their Spring Break vacations.

We found a strong positive relationship between gas prices and the price of Big Mac Meals. This suggests that tranportation costs do impact producer prices.

[Zynx]

19. The problem with the CPI is that it tracks the costs of products that have

been around for a set amount of time like you mention and does not take into account similar new products. Therefore, true inflation is heavily understated.

[UpInArms]

5. this mal-administration is

spinning and cooking the numbers in ways that make their lying statistics gag a maggot.

From delaying and reconfiguring the way the PPI (Producer Price Index) is calculated to discounting the the cost of energy in home heating for the CPI.

We all know that it now costs more to drive to the store, buy our groceries, send our children to college, go to the doctor or the pharmacy.

I grow weary of them telling me to quit believing my lying eyes and trust their numbers.

I am tired of going to the store to find that a product is "new and improved" in the way that the package is smaller and the price is higher.

"New and improved" for whom? Definitely not the consumer who needs food or soap.

[starroute]

6. A couple of good links

I picked these up off the daily Stock Market threads:

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2004/03/17/statistics_lie_on_the_true_cost_of_living/
http://www.gold-eagle.com/editorials_04/benson032704.html

Bascially, the feds have a lot of ways of keeping the nominal inflation figures low -- such as excluding food and energy costs, counting it as a price reduction when companies add a few more bells and whistles to this year's models as compared to last year's, and balancing falling housing costs in states that are losing population against skyrocketing costs in the major cities.

All of this is done on purpose, because it enables them to minimize things like Social Security cost-of-living increases. But it is starting to have an extremely distorting effect on the national economy.

[papau]

7. reducing inflation for product improvement is SOP for Bush folks

Just how clothes get improved is beyond my pay grade -

but it is clear that without the reduction for product improvement, inflation would be much much higher under Bush.

[Crachet2004]

18. You are so right. And both parties are responsible for allowing the

fiction of low inflation to continue. It really screws retirees. And unions, when it is time to renegotiate wages. Unions are the ones who need to fund some alternate studies on inflation, I think, because they are getting beat even when they win, using these bogus numbers.

Someday soon, somebody is going to generate some real numbers on inflation, and they will be mindboggling. Fuel is not going to go back down. They cannot keep lying forever.

I was at a stock sale last week, and watched feeder calves go for $1.17 a pound, on the hoof. That is unreal to me...thinking about getting back into it.

Bad inflation numbers are just another way to benefit corporate America. Something needs to be done about it.

[calimary]

8. Have any Producer Price Index figures come out yet?

They've been delayed for January AND for February. I have yet to see any. Although I may not have been looking as carefully as I could...

[UpInArms]

15. you can go here

for the information - January's was released, but I can't find a direct link to the report and they have already said it contained errors (who would have thought that?)

http://www.bls.gov/ppi/home.htm

revisions for January

http://www.bls.gov/ppi/notice03262004.htm

February has still not been released - here's the latest memo on that

http://www.bls.gov/ppi/delaynotice.htm

[yltlatl]

9. As I've said on this board before...

The Hoover-Bush comparison is gonna be even more apropos than anyone ever guessed when this sh** finally hits the fan.

[Media_Lies_Daily]

10. I find it interesting that Greenspan saw inflation everywhere during the..

...last year of Clinton's Presidency. In fact, he found inflationary indicators where no other economist saw them. The result was a steady increase in interest rates during the latter part of 1999 into 2000. Greenspan immediately reversed those rates after Junior's Selection, but the damage had already been done.

Flash forward four years, and suddenly, Greenspan can't find an inflationary indicator to save his life. Interesting, isn't it?

[UpInArms]

16. Meanspin is a partisan hack ... eom

[Rex]

11. Rich people have more holdings then ever before.

They also control the market. When Medicare goes up it doesn't concern them - they have their own private doctors. Tuition isn't a big concern because their noble children are guaranteed a slot in the Ivory Tower. Housing? What multibillionare worries about housing? Maybe if that word (housing) applies to ONLY being able to afford 13 houses (ie Ken Lay) then yes, they might worry.

Leading indicators are off because the wealthy control EVERYTHING in this country, the ones that feel economic reality are us, the 'everyday consumer'.

[puerco-bellies]

12. As a Commodities Broker

The only market I have played in the last few months on a steady bear trend(down) is the U.S. Dollar. Every other market with the exception of the stock indices and the softs (OJ, Cocoa, Coffee) that I have been right on is in not only a Bull market, but gives every indication of going into a "secular" bull market.

BTW IMHO Short the bonds, interest rates are going to explode.

[west michigan]

17. before or after the election?

very curious .... looking to buy a house before elections and I am curious on your perspective.

[puerco-bellies]

20. Look at the difference between Sept/Dec

TY (T-Note) contracts. The post election December Contracts are trading significantly higher at one out of the money strike price then the sept. For an example go to:

http://www.tradeamerican.com/charts.htm

To figure the value of these $100,000 note contracts, every digit to the left of the ' equals $1,000 ever digit to the right equals 1/64 of a thousand

1/64th = 15.625

Go to interest rates/click on treasury note 10 yr/
notice that the September is trading at 112'25
notice that the December is trading at 114'01

click on the option symbol (omega) on the September
scroll down till you come to the 113' one strike out of the money "put" option
notice that it's option trading (value) is at 1'54 that equals $1000 + 54 * 15.625 or 843.75 for a grand total of $1,843.75 to buy that one strike out of the money put option.

Now go to the next contract trading after the election the December contract which is trading at 112'25 now click on the option symbol (omega) and scroll down to the one strike out of the money contract the 111'00. Notice that that contract is trading at 6'26 that equals
$6,406.25

Huge difference in cost to play a one stike out of the money puts between one contract and the next!

If interest rates rise the value of the futures contract drops (hence the put) because the owner/writer of that $100,000 note/contract has to pay more on the principle of that note in interest.

I, nor anyone else can see what the market will do (If I could I would be typing this with Jenny Mc Carthy on my lap :-)).

It is obvious that the market thinks that there will be at the very least bias towards raising interest rates if not actual raises.

This is one of the laws I live by.

Trading Rule # 32
"The deepest secret for the trader is to subordinate his will to the will of the market.

THE MARKET IS TRUTH AS IT REFLECTS ALL FORCES THAT BEAR UPON IT.

As long as the trader recognizes this he is safe. When he ignores this he is lost, and doomed."

[west michigan]

21. Thank you.

Jenny still looks great does she not? If I follow things correctly... my sense is that there is upward pressure on interest rates but may be held down a bit untill after the election?. My real time window is about 2 months for a certain house provided the seller does offer to sell it. Depnds on price though. Recommend any good financial chat or other sites? Mostly pay some attn to prudent bear.

[puerco-bellies]

22. Agree

I do think they are applying as much pressure as possible to keep interest rates down as far as possible. Lower rates are one of the few things other then the loss of value in the dollar that are helping the economy. This is not sustainable has the note and bonds are what finance our debt. Something has got to and will break. I just hope it is not the economy in the way of another great depression.

As for financial chats, don't know a single broker that listens to most other's opinions, we tend to keep our own counsel.. I don't frequent, or even know of any chats, sorry. The persons I think have the best handle on the economy are Warren Buffett, and George Sorros. Everybody else in my opinion are clueless or have sold out.

[buycitgo]

24. so I should refinance (my Gram has an ARM......rats)

check PMs, pls

[meow2u3]

13. Another reason the Bushies deflated the inflation rate

They needed an excuse not to give Social Security recipients their rightful COLA raise, based on the true inflation rate instead of the stated one, a rate about 1/3 the size of actual inflation.

In other words, SS recipients got a 2.1% COLA increase in benefits, despite--or because of--the fact that the real rate of inflation is about 6 1/2 percent.

[catmandu57]

14. It's anecdotal,but

I live on a fixed income, every month when the eagle flys over and drops it's payload, I buy basically the same thing. Personal toilertries, and catfood, these have been slipping steadily upwards for quite some time.
Last year I averaged 37.00 a month now it costs me fifty something, I can feel inflation, no matter what mr. greenspan or any of *'s hemmarhoid lickers.

[buycitgo]

25. that's HUGE if it's accurate.....twenty six perCENT!

you sure about that?