Pretty much everyone but wall street and government economists now understands that the Fed is using a so-called ‘core rate’ measure of inflation to understate inflation’s true size, and doing so in order to keep from being forced to halt its low-rate, money printing, pump priming policies. What’s not generally understood, however, is how utterly warped and inherently deceptive this core rate of inflation measure actually is.

The CPI (Consumer Price Index) is computed by assigning percentage weights to various kind of costs, then seeing how these costs change from month to month. Food and energy costs of various kinds soared last month as they have been soaring for some time. Together, in government number crunchers reckoning, they represent approximately 25 percent of a typical American’s monthly costs. So when these costs are excluded, as they are to get at the remaining ‘core costs,’ about 75 percent of CPI costs remain to be computed.

Now we get to the fun part — fun, at least, for folks who like to pretend that there’s little or no inflation at the core of our economy. Most of the costs in this rump “core” actually went up quite a lot last month, as has also been true for some time. Shelter costs, however, rents and housing, didn’t. They rose just 0.1 percent in April, and are the primary reason the core rate generally rose just 0.2.

Shelter costs account for 42 percent of the entire CPI measurement. So as long as these costs don’t rise sharply, there’s a cap (at least an apparent cap) on the overall CPI. And since shelter costs also represent about 60 percent of the CPI after food and energy costs are excluded, there’s a near certainty that stagnant shelter costs will make the core rate seem very modest.

The fun for Fed funsters who like to use statistics to disguise an inflation reality that is painfully obvious to the rest of us, is that in today’s economy it is virtually impossible for shelter costs to rise much because they include housing prices which continue to drop like a stone.

This drop doesn’t mean homeowners pay less for shelter, of course, because their mortgage costs don’t decline when your house price does. What it does mean is that as long as the bunglers at the Fed who allowed a housing bubble to get out of control, and now can’t figure out how to keep that bubble from deflating further, these same bunglers can diddle an inflation number, call it “core inflation,” and proceed on their bungling inflationary way to do even more harm than they’ve already done.

Ah, but why even bother commenting on this peccadillo. The country went into technical default today and the markets hardly seemed to notice. In this brave new world of high finance, all things seem possible. Though perhaps not for much longer…

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