The True Rate of Inflation
The True Rate of Inflation by Brian Maher – Daily Reckoning
The Federal Reserve pursues its 2% inflation target with a zeal verging on derangement.
Yet it progresses toward its target as poor Sisyphus of Greek mythology progressed uphill with his rock — in vain.
Core inflation registered 1.9% in January… and 1.5% in June.
The most recent core inflation number?
A Sisyphean 1.4%.
The rock rolls downhill.
Here we speak of official inflation.
But is actual inflation dramatically higher?
Today we pierce the mask of statistics… expose the myth within… and hazard a true inflation reading…
The Fed’s 2% inflation appears as distant as the summit of Sisyphus’ hill.
Experts dispute the causes — depressed worker wages resulting from globalization, “secular stagnation,” the astrological misalignment of stars and planets, etc.
But assets such as stocks, bonds and real estate have been the scenes of dramatic inflation over the past several years.
And therein hangs an epic tale…
Joseph G. Carson, former global director of economic research at AllianceBernstein:
U.S. financial markets have in the last 20 years experienced three unprecedented booms in asset prices and two busts. During this span, the market value of real and financial assets held by households has increased more than $70 trillion…
Traditional inflation models exclude these asset prices.
But what if they were included?
The New York wing of the Federal Reserve has hatched a model for that expressed purpose…
The “underlying inflation gauge (UIG).”
This UIG incorporates not only consumer prices… but producer prices, commodity prices and financial asset prices.
It thus promises a true inflation reading.
The New York Fed:
The UIG proved especially useful in detecting turning points in trend inflation and has shown higher forecast accuracy compared with core inflation measures.
If we gauge inflation by this comprehensive model… the true rate of inflation is above the Fed’s 2% target… and roughly double the core rate.