I used to go to comedy clubs when I needed a laugh. Now I just wait for official numbers from the government to be released, and the wonderfully funny interpretation of these numbers by economists and happy talkers in the financial press, and what I’m hearing after today’s CPI (Consumer Price Index) release is an even bigger hoot than usual.
The CPI rose 0.5 percent in December, a huge amount (6 percent on a per annum basis) and the largest increase in the last 18 months. But was there a cause for concern here according to the wise ones who parse our country’s economic situation? No, sir!
These worthies note that most of this increase was due to an 8.5 percent jump in the price of gasoline and a smaller hike in food prices. When food and energy prices are excluded because they are “volatile,” however, the so-called “core rate of inflation” was just 0.1 percent in December.
I gotta take a break here. I’m laughing so hard.
OK. Back to writing.
Excluding food and energy from serious notice when looking at inflation is inherently stupid for two reasons. First, because they are so basic to human life; and second, because these two components of the CPI are no more nor less volatile than some other components of the CPI such as health care.
This whole core-rate-excluding-food-and-energy business because these CPI components are volatile is in fact cuckoo. That’s perfectly clear when you compare the official CPI numbers for all of 2010 and the core rate numbers for the same period. The official CPI was 1.5 percent for the entire year. The core rate increase was 0.8 percent for the entire year. And while “volatility” might be cited over a month or two, it doesn’t make sense to cited it over a full year period. Which means this core rate focus is simply bogus, is just a mechanism for pretending inflation is running at a lower rate than it actually is.
Cute, ha? It gets funnier.
A few years back the government started compiling health care costs to include in the CPI. But in spite of the fact that most people reading this post received notice of a back-breaking increase in their health insurance rates in December 2010, these increases were not part of the official CPI released on January 14, 2011. They will be released separately on the 25th of this month. And given that these costs rose 2.2 percent in November and 2.7 percent the month before, if they were included in the December 2010 CPI numbers they would certainly have moved these numbers upward in an even more disquieting way — though perhaps not, if they were labeled “volatile.”
Ah, but why make such a big thing about the market’s kinky interpretation of CPI numbers when so many other numbers get an even kinkier treatment? Today’s DOW at the time of this writing is not only up because of headlines like one on Yahoo Finance website that merrily proclaims “Inflation Calm,” but because this same headline also heralded the great news of a “Retail Sales Rise” in December. These sales rose an impressively sounding 0.6 percent in December.
An increase to boost our spirits? Hardly — not when you also note that inflation in the same month rose 0.5 percent. Which means that net inflation, retail sales last month were virtually flat. And when you also note that the huge 8.5 percent jump in gasoline prices were included in that retail sales tally, you see than an inflation adjusted, non-gasoline sales “increase” was actually a rather sharp decrease.
Are you laughing yet?
How about that other reason the stock market was in a jolly mood early today. The fact that J.P. Morgan, a leading bank, reported a huge profit increase.
Alas, however, this was not due to increasing banking business, which would really be a good sign for the economy. Rather, it was largely due to the bank moving a lot of its reserves into the profit column because, hey, who needs more reserves, right? The record million foreclosures on homes in 2010 is expected to set an even larger 1.3 million record in 2011. The commercial real estate market is still in disastrous shape. Sovereign debt (including our own, la di da) is highly challenged. And endless high unemployment represents its own challenges to outstanding loans of all kinds. So who needs a lot of reserves?
I have to be honest here. I’ve personally been negatively affected by this numbers gaming. I used to have a profitable sideline writing financial satire, but competition from daily financial reporting is driving be out of that business. How do you compete with our present government number-fudgers, and with the endless ability of Wall Street spinners to turn trash to gold?
But at least a few times a month there’s laughs a’plenty in this realm. I can’t wait for the next employment report which will almost certainly exceed analyst expectations.
More from this writer at http://blog.wallstreetpoet.com/