Rotten to the core: Food and energy inflation cannot be ignored

[cali]

By Irwin Kellner, MarketWatch

PORT WASHINGTON, N.Y. (MarketWatch) — It’s time to look at all prices — including food and energy.

One of the biggest canards ever to be foisted on the American people is the notion that removing food and energy from the price indexes provides a clearer picture of inflation.

In reality, it’s just the opposite.

The so-called “core” rate of inflation (the headline price indexes minus food and energy) is grossly misleading. It was designed in the 1970s to take our eyes off what’s really happening to prices so the Federal Reserve could maintain an ultra-easy monetary policy.



Guess what? This is exactly what the Fed is using it for today.

Taking food and energy out of the price indexes was the brainstorm of the then-Fed chairman, Arthur Burns. He was looking for a rationale to keep policy easy in order to help Richard Nixon’s bid to be re-elected president, back in 1972.

Burns reasoned that no amount of money created by the Fed could produce one bushel of wheat or one barrel of oil. Their prices related mainly to such exogenous factors as the weather and geopolitics. As such, they have nothing to do with the state of the economy.

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http://www.marketwatch.com/story/inflation-numbers-are-rotten-to-the-core-2011-02-08

[Lindsay]

1. This is one of the most appalling ways

our government lies to us consistently.

[katnapped]

2. Yep, and the reason why

When you ask people they say the government is out of touch with real Americans.

[Angry Dragon]

3. When was the last time you saw a politician

shopping in a grocery store or pumping their own gas??

They have no idea what it takes to live ........