Inflation: Reality's Illusion

The stock market bulls cannot get into my inbox fast enough this morning. Bernanke hasn’t raised rates since 2006 and they are cheering him on to keep a Japanese status quo. My inbox is usually a contrarian indicator. A hope that Americans aren’t experiencing an accelerating rate of inflation right now remains just that – a hope.

Rather than trust the data in the calculation of headline CPI (the government has numbed it down 9x since 1996), let’s look at both the absolute level of the government’s conflicted and compromised report (relative to itself) and the components of the calculation (without weighting them to the government’s benefit).

  1. Headline CPI accelerated sequentially (month over month) from +2.1% last month to +2.3% - that, on it’s own, is inflationary
  2. The Medicare and Education components were up a lot more than the Index, moving to +3.7% and +4.9% year-over-year, respectively
  3. Owner’s Equivalent Rent (which composes 40% of the Index) was down -0.1% sequentially and completely toned down the broad inflation in the report

So, what to do with in an America where the government tells you there is no inflation when there is? Assuming you live in DC and have a full medical plan and you don’t use gas in your car, eat, or have kids who go to school, you probably call this conflicted CPI report goldilocks. That’s just plain sad and that also speaks to the high-low society that this very wealthy nation is willing to continue to perpetuate. One out of every four children in America now eats off of food stamps.

There was a day when Bernanke was, in theory, “data dependent”; but that was as silly as the ideologies that Greenspan espoused. If these people didn’t see the inflation that you can see in this chart in 2008 (on their own compromised calculation), don’t expect them not to be willfully blind to it this time around.

The divergence between the Institutional Investor Survey (a contrarian indicator) and the ABC/Washington Post consumer confidence reading this morning is striking, but it makes sense. Americans aren’t stupid. Inflation is here until the Fed tones it down by raising interest rates.

KM

Keith R. McCullough
Chief Executive Officer

Inflation: Reality's Illusion - US CPI