Substitutions: There have been numerous academic approaches to this subject. Let's take a closer look at two of my favorite inflation data absurdities, Substitutions and Hedonics: and UK inflation data in " The Sordid Truth About Inflation." By the time the UK inflation arrives here, it's so tired by its swim across the pond that it can't move the BLS needle at all. We discussed a few of the differences last week between U.S. A variation on Core Inflation is Wall Street's love affair with Inflation -ex-inflation, which is a basket of only those goods and services that have not gone up in price.įinally, the latest inflation innovation is a new concept I call Uni-directional Inflation, which states that when certain items (e.g., Oil, Corn, Copper) go up in price, it is not inflationary - but when those same items drop in price, it's proof positive that inflation has been vanquished. Then, we have the Fed's focus on core inflation, which tends to ignore the non core items like Food and Energy (besides, who really needs Food and Energy anyway?). Next, add a sprinkle of substitutions, quality improvements, and hedonic adjustments, all of which rationalize price increases as somehow non-inflationary. Start with the inherent bias built into the BLS models, and their tendency to understate inflation. Let's take a closer look at some of the specifics: I have long railed against many of the absurdities associated with modern Inflation reporting.
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