It is very fashionable these days to declare that the Consumer Price Index is wildly understating actual inflation. I’m dubious, and my dubiousness may eventually lead to some actual reporting and maybe a column, but for the moment I rely on the judgments of people named David. First there was David Leonhardt a couple weeks ago in the NYT, and now Merrill Lynch North American economist David Rosenberg weighs in a report to clients that begins:
It’s truly fascinating … that the pundits choose now to come out and inform everyone how distorted the CPI is. This is new? Nobody knew that today’s CPI is structured differently than it was three decades ago? … Everybody is judging the inflation landscape strictly on what is happening in the commodity markets, yet when the CRB was sagging at between 15% and 20% annual rates with near consistency in 1998 and 1999, and the headline inflation rate was locked in a 1.5% to 2.5% band, nobody questioned why it was back then that the CPI wasn’t deflating along with the commodity complex.
Later in the piece Rosenberg runs through a bunch of things that are declining in price (toys, furniture, appliances, new vehicles, tools, clothing), and he declares that while some Americans might be feeling more pain that the 3.88% headline inflation rate would indicate, many others are feeling less:
If, say, you are a homeowner with young kids but no pets; you take public transit as opposed to driving a car; don’t fly; don’t drink, don’t smoke; you prefer to eat in rather than eating out; your inflation rate is likely less than 2% right now.
I drink and I fly–although my employer pays for it much of the time (the flying, that is; not so much the drinking) and we have pets (but just a fish and a guinea pig), but otherwise that describes me to a tee. No wonder I’m dubious when people say inflation is skyrocketing.