DislikedWhoa, stop the presses.
I didn't know energy wasn't factored in. Actually, isn't food part of the consumer price index thing, don't they use that too?
I have more learning to do than I thought.
If energy wasn't factored in, I figured rising energy prices cause prices of EVERYTHING to rise anyway, and that's where the inflation was coming in mainly. Isn't that part at least true? So if gas hit $5 or 6 a gallon, there goes inflation again, as all the prices for everything, thanks to transport or even manufactoring like plastics have massively increased.Ignored
The logic is (so I'm told) that since food and energy prices can be very erratic in the short term, academics don't like their calculations to be muddied by the volatility. Their thinking is the same as yours - eventually the effects of higher energy prices will work themselves into the economy. I agree, that part is definitely true. But the picture isn't whole yet.
In the past, energy prices have notoriously spiked and then simmered back down to more managable levels in a short period of time. The same with food. Most likely, it is a good thing that the Fed and policy-makers are not taking into account all of the short-term fluctuations in energy prices. This would turn the world's largest central bank into an energy speculator to some degree. Energy is volatile after all.
My point is, I simply don't agree with the Fed's policy that energy and food need to be excluded completely from the inflation numbers. Perhaps there is a way to account for some of their short-term effects beyond the eventual diffusion through the economy and have that factored in to monetary policy decisions. It seems like the old "separate but equal" laws. What can happen is that as enery prices rise quickly, prices for final goods don't always respond as quickly. Over time this takes place, but even trucking businesses cannot possibly raise prices as fast as energy fluctuates. It would be madness. Profits are squeezed out first, then prices rise. Why? Competitors are always reluctant to raise prices against other firms. And firms colluding with one another to raise prices in response to energy price spikes would land them in front of the Justine Department for anti-trust infringement. People would call their congressmen with two words to say, "Price gouging!"
It just doesn't make sense that the two pieces of the CPI that could cripple my living standards faster than anything short of a layoff are ignored because they're supposedly too much for the smartest people in the free financial world to handle. I don't have the perfect solution, but the dual system of measuring consumer prices is a joke to me.
You can view a list of the current components of CPI here:
http://www.bls.gov/news.release/cpi.toc.htm
Take a look, tell me what would cause a bigger financial burdern for you: a 30% rise in the cost of clothing, or a 30% rise in the price of a barrel of oil (approx $100/barrel). Why is apparel kept as a "core" number? Or entertainment for that matter?
This is just my opinion, and like I said before I haven't got the solution - but I sure feel as if I have identified a problem heh! Comments and questions always welcome