CPI Overstates Inflation? Puh-Leeze!
Larry Kudlow has been flogging my Ben Bernanke as Neville Chamberlain quote for weeks now. So why do I think Ben Bernake is dovish on Inflation?
His view of CPI data.
Setting aside the rest of the dismal scientists idiotic obsession with the core rate of inflation, no one (outside of academia) is persuasively arguing that prices across a broad cross section of goods and services are not going higher, or the purchasing power of the dollar has slipped. One top of that, the supply demand equation continues to see the printing presses working overtime, further eroding dollar strength.
I cannot find it at the moment, but prior to my “Neville Chamberlain” remark was some commentary by Fed Chair Ben Bernanke’s that the CPI overstated inflation. That’s what led to my painting him an inflation dove.
Today, we see once again a the same idea. In a letter to JEC Chair Jim Saxton, Fed Chair Bernanke reiterates the idea again.
"Most analysts believe that changes in the CPI overstate changes in the cost of living to some extent . . . The PCE price index likely is also biased upward, though probably by less that the CPI in light of PCE' measure's advabtages cited above. Although increases in energy proces have pushed up overall consumer price inflation over the past couple of years, core inflation has been more stable."
In case you were wondering, I find this nonsensical.
BERNANKE’S ANSWERS TO SAXTON’S QUESTIONS RELEASE
Letter from Fed Chair Bernanke to Jim Saxton, Chair, JEC
May 24, 2006
http://www.house.gov/jec/news/news2006/bernanke statement 05-24-06.pdf
(see page 5 of PDF)
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» the great hedge fund bust of 200X from I Love Everything
this guy manages a HF and he's been relentlessly bearish for quite some time. Tippy toes, folks. I put all my mutual fund dollars into international/emerging markets about a month ago because I don't like this scene, but it'll be fun to watch. [Read More]
Tracked on May 26, 2006 2:15:34 PM
yep no doubt Bernanke is scaring some folks including myself.. i think his intentions of transparancy are good but he will likely find himself behind the curve as the market is discounting the future and the data he's looking at is lagging.
interesting that the Eurodollar strip, one the largest most liquid markets in the world, is not really discounting a June tightening but the bond market which is equally as liquid has been flattening suggesting that the long end is looking for tightening. the dollar looks like it could move either way. next Friday's employment data could make things very interesting.
Posted by: vf | May 26, 2006 12:45:24 PM
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