Here's a business ripe for price-relief:

http://www.dailykos.com/story/2008/6/13/1027/31854/800/535153

Oops-- link

Maybe inflation and gas prices wouldn't hit people so hard if we didn't have so many people who shamelessly charge so much for little things. We live in the country that has mastered the art of making people pay $3.59 for a toothbrush that should cost .50 just because it's got racing-stripes on it.

My dad does not own stocks. Most of his retirement money is in cds. These are now earning under 3%.

MSM doesn't talk much about how people are hurting. The economy has gone the way of the occupation in Iraq - too sad for the ratings.

The Fed focuses on core inflation because it really can't do anything about food and energy costs. Unless one thinks they (the Fed) should tighten until the US economy slows to an extent that demand for both food and energy declines so much that those prices will decline.

When you say, 'Unless you think that food and petroleum are currently in bubble mode..' I can't go along with the premise. It seems to imply that the only reason to view this inflation as a spike is if you strip out non-core elements. Another reason to view this shock as spiky is that, empirically, inflation persists for a while while demand turns down at the start of a slump. Markets might be discounting that pattern and pricing in inflation that will follow our manifest slowdown, but with a lag. Just so you will take this seriously, I think it qualifies as a bet if your portfolio asset allocation is 40-odd percent in bonds. (50-50 USD/foreign; foreign duration of approx. 3 yrs. is much longer than US duration, because I think that inflation measures are uniquely phony in the US).

unless you think that food and petroleum are currently in bubble mode
It might be a good time to ride that bike more and go on a diet.

Actually 7.44%

Agree with Mr. Drum overall, but there are lotsa finance types who believe that oil prices ARE in a bubble, as money pours into commodity futures markets.

Generally, futures for commodities can't go too far above the current spot prices - plus storage costs and minus a "convenience yield".. Arbitrage should lead to an equilibrium between spot and future prices. But oil is different: because of the way it is delivered, a "spot" price IS a futures contract, the one with the shortest maturity. My understanding of it is minimal though.

Anyway, who knows if it's true, but some smarty economists say it might be.

That famous "core inflation rate" concentrates on axminster carpets, jalosie window glass, and flit guns, none of which are increasing much in price.

Swan,

It seems to me that if you're going to link to your own diaries that's probably okay, if you say I'm linking to my own shit here. But you shouldn't link to in a manner that implies "here's something interesting I found." That's not blogwhoring, that's blog transvestite whoring. Something entirely different.

There are so many metrics and business today that are nothing more than Spin. It's no wonder we have bubbles every couple years. Our country is knee deep in bullshit.

must click preview
must click preview
must click preview
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Yes, the food bubble will definitely burst when people start realizing that food is way overvalued, and lose their desire to eat.

This "core inflation" BS has always baffled me.

In the seventies when we had a reasonably good inflation index (notice I said reasonably good -not perfect), and most businesses and employees had pricing power, an oil spike set of an inflationary spiral, as everyone tried to make up for the decline in income necessitated by the oil spike. In times like this where the economy has to take it on the chin (i.e. the net real income of all the members of the economy put together must drop), not having everyone be able to raise their own prices to try to stay even at least avoids the possibility of runaway inflation. The bogus inflation index helps in suppressing inflationary demands. It also helps in fooling people, the official statistics show the median wage earner gaining ground, when in fact he has been losing ground for decades.

How's this for inflation? Because I don't have health insurance, I paid a doctor at a rate of $15,000 to blast a deafness-inducing gob of ear-wax out of my ear with a water-jet.

But the Republicans don't care about something like that, because they are too smart or something and are focusing on the important task of maiming (or driving nuts) thousands of able-bodied, patriotic Americans in the Iraq war.

Thersites, your constant unnecessary appeals to politeness are childish. I am linking to important stuff here. Kevin's blog gets to be anything he wants it to be by his writing the posts.

The comments thread is more like a community for the readers that he merely sponsors. I am linking to stuff that the readers may want to read. Putting my name on it (or not) in the comment is a non-concern. I write about stuff that may spur people to care about things, not just about trivia or parliamentary tactics or insults the Republicans sling at us that we can do nothing about now. You are always trying to stand in the way of me doing this and trying to mess up my reputation. You reguarly use a whole comment to write a juvenile insult of me that has no substantive criticism at all (your most recent comment was a rare exception, more like a fig-leaf than an example of how you routinely behave towards me).

I paid a doctor at a rate of $15,000 to blast a deafness-inducing gob of ear-wax out of my ear with a water-jet.

Sorry, supposed to be "$15,000 an hour." $125 for 30 seconds' work!

Swan,
I'm not taking exception to your linking to your own blog. Lots of people do that here. Fine.
What you're doing, which nobody else does, is linking to your own blog without mentioning it's your blog. Others have also remarked on this.

Kevin seems close to realizing that the power Establishment orients everything around what "investors" want and need. Ironic, how much support the investing class gets from the conservative factions despite most of them not doing useful financing (like original capital investment, versus just trading the existing shares. Some poor dopes actually don't know the difference, and think that buying shares of stock funds the company's growth.)

Am I the only one noticing that this news came the day after retail sales supposedly "soared" last month? So did sales go up because more people bought things, or did they go "up" because prices went up, so people were buying the same amount of stuff but paying more for it?

The reason the Fed uses "core inflation" to set monetary policy is that energy and food prices are so volatile that including them when looking at short term (monthly or quarterly trends) would lower the signal/noise ratio of the index.

Of course, food and energy prices should be included in the long term picture, but using monthly food/energy prices to extrapolate to an annual inflation rate is like noticing that your favorite restaurant raised prices by 50 cents yesterday and concluding that their prices will go up by $182 by this date next year.

And as for "I won't take you seriously on this unless you're willing to put some money behind that bet", spare us the empty posturing, Kevin. We all know the maxim "The market can stay irrational longer than you can stay solvent."

On the one hand, "most people" make some money by working. On the other hand, "most people" pay some money for food and shelter, and some more money for gas to drive their cars to work.

Isn't that, basically, the core?

The markets got it right. The Fed bases its interest rate policy on core inflation, and changes in interest rates are what Wall Street cares about.

Besides, the market already knew what oil and food prices were, prior to the release of the report. It was the core component that was actual news.

Finally, projecting an annual number from one month's figure is bogus. I *would* bet that year on year headline inflation won't exceed 7% in 2008. FTR, headline inflation is at 4.2% while core inflation is at a cooler 2.3%.

Brock: The reason the Fed uses "core inflation" ... lower the signal/noise ratio of the index.

First explanation I've heard that makes sense. But there should be a way to filter out the "noise" without disregarding longer-term rises in food and energy costs. At what point do those get factored in?

Brock, I just realized your second paragraph already said what I said.
I must learn to read one of these days. People tell me it can be quite useful.

Thersites:
Brock: The reason the Fed uses "core inflation" ... lower the signal/noise ratio of the index.

First explanation I've heard that makes sense. But there should be a way to filter out the "noise" without disregarding longer-term rises in food and energy costs. At what point do those get factored in?

Well depending on whether you buy into the idea that on average food and energy costs increase at the same rate as everything else, it's always there or it's never taken into account.

For what it's worth, I am of the opinion (and it is ONLY an opinion) that food and energy...for which demand is considerably less elastic than toothbrushes either with or without racing stripes...does not increase at the same rate as the core rate.

The degree to which policymakers and employers let their decisions be directed by considerations of the core rate thus, over the long run, becomes a good stand-in for the degree and severity of the buying-power erosion experienced by the average consumer.

In other words, while the core rate is better for saying whether in the short term the economy is overheating or not, in the long run you should look at the overall trends in the rate of inflation incuding food and energy. If you don't you underestimate the financial squeeze experienced by the average consumer.

...which is why social security and taxes are indexed to the headline rate of inflation, as is appropriate.

The adjustments that were made by BLS to the inflation index since 1970 have significantly reduced the reported inflation. If the old standard were to apply, today's inflation numbers would be similar to those in the worst periods of the 70's. Whatever the economic justification for the changes, the changes were made to reduce the benefits that are indexed for inflation. Note: Europe measures inflation the old way. That is a factor in the decline of the dollar.

>reason the Fed uses "core inflation" to set monetary policy

That's the argument, and it would be a good one if anybody ever proved that they are actually exceptionally volatile. But I've noticed that is always stated as a fact equal to the existence of gravity, but never backed up.

However, at least for energy I have no real quibble with it up. Because the best argument for not including it I ever heard was "sustained increase in the cost of energy will work their way into the core eventually, bet on it".