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Mix-Ansicht- Einige Hintergründe zum Thema"Hedonic CPI" - Popeye, 05.03.2002, 13:26
Einige Hintergründe zum Thema"Hedonic CPI"
Some Unconventional Wisdom on Inflation
By Aaron L. Task
Senior Writer
02/22/2002 01:43 PM EST
It has been overshadowed by the market's wild gyrations, which had mercifully subsided early Friday, but the inflation debate is back.
On Wednesday, the Labor Department reported the consumer price index rose 0.2% in January, putting its year-over-year increase at
1.1%, the lowest since 1986. Many believe even that modest level overstates inflation, The Wall Street Journal reported Thursday,
detailing the government's plans to revise the CPI.
Beginning this summer, the government will use the
chained CPI, which is adjusted for spending on certain
goods as prices rise and fall. Predictably, the plan has
raised the hackles of those who don't adhere to the
conventional wisdom, as chanted mantra-style by most
Wall Street economists and certain Federal Reserve
officials:
Inflation is contained.
Inflation is contained.
Inflation is contained.
Repeat ad infinitum
"I don't understand some of these arguments" for the
planned changes, said Paul Kasriel, chief U.S. economist
at Northern Trust."If the price of one thing goes up, there's
a reason I'm buying less [of it]: It's called inflation."
Those who buck the conventional wisdom refute the
argument that CPI overstates inflation, arguing that falling
energy prices have masked rising prices in other sectors of the economy in the past year. Furthermore, they suspect the drive to
restate the index is being driven by political considerations.
Kasriel, who has long warned about inflation's potential re-emergence, candidly admitted pricing pressures have proved weaker than
he anticipated.
"There's no getting around it, energy fell and the overall inflation rate fell," he said."To me the question is if energy prices stabilize
-- not even rise -- and service sector prices continue to move up at the same pace, what's that going to do to the inflation rate?"
James Bianco, president of Bianco Research in Barrington, Ill., expressed a similar view, noting that energy comprises just 6.5% of
the CPI."The other 93.5% [of the index's components] is in an uptrend," he said."If gas prices just stabilize here, you'll see a big
uptick in the CPI."
The core CPI, which excludes food and energy, rose 2.6% in a year-over-year basis through January, after also climbing 0.2% last
month.
Furthermore, the Cleveland Fed reported Wednesday that its Median CPI, which doesn't automatically exclude any particular sector,
rose 0.3% in January, bringing its year-over-year increase to 3.9%.
I know, I know: Inflation is contained.
The New Third Rail
Kasriel and Bianco agreed on one other critique about the planned changes to the CPI: There's a political element.
The current administration would certainly benefit from a lower CPI, because Social Security payments and other government
outlays are linked to the index. Lowering them would help mitigate the budget impact of the White House's efforts to lower taxes and
simultaneously increase spending.
Michael Boskin, who headed a commission that concluded CPI overstated inflation by 1.1% annually, was formerly chairman of the
Council of Economic Advisers in the first Bush administration. He is also believed to be on the short list of possible replacements for
Fed Chairman Alan Greenspan, whose current term expires in June 2004.
"He's relatively apolitical even though he worked for Papa [Bush], but I have wondered about this," Kasriel said.
Boskin did not return a phone call seeking comment.
Calling it"the one conspiracy theory I believe in," Bianco took it a step further, saying the entire federal government has an
incentive to lower CPI. Government payments to some 80 million Americans -- Social Security and food stamp recipients, plus
military and federal Civil Service retirees and survivors -- as well as the federal tax structure are pegged to the index, according to
the Bureau of Labor Statistics.
Additionally, he suggested if the real inflation rate is close to the year-over-year gains of 2.6% or 3.9% for core CPI and the median
CPI, respectively,"then the fed funds rate is too low and the Fed has a lot to do on the upside."
"This index is what the money is riding on," the market watcher continued, noting there have already been nine changes to CPI
since the Boskin commission's findings in 1996.
"People always argue government statistics are wrong, but do they go through the effort of making nine changes" to any other piece
of data?, Bianco mused."The reason they went through all this is because there's a lot of money riding on this index. There's not
only a vested interest in getting it as low as possible, they were blessed by the Boskin commission to do so and they rushed in."
Because of all the changes, which include adjustments for generic drugs and the rising quality of computers,"not only is CPI not a
bad measure [of inflation], it's probably the best around," Bianco argued. The notion that CPI still overstates inflation is"urban
legend put out by bulls that are desperate to get higher [equity] prices" and lower bond yields.
P.S.
I suspect the above is going to raise the ire of many readers, especially those who recall that I've been writing about the potential for
the return of inflation for the better part of a year. Some might charge that I'm focusing on the core or median CPI because those
figures support my viewpoint. Maybe so, but doesn't the same hold true for those economists who focus on the personal consumption
expenditures or core CPI minus insurance?
As always, I welcome debate, although please note that I repeatedly wrote last year that inflation could be a problem when the
economy rebounded, although clearly that process has been lengthier than originally contemplated.
Quellle: TheStreet.com
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