07-14-2021, 07:29 AM
|
|
|
|
Join Date: Dec 2008
Location: Near Edmonton
Posts: 15,358
|
|
Quote:
Originally Posted by bdub
|
That is a good article. I particularly like this section as it is exactly what is happening right now. CPI is being measured against what has gone up the least, not by a full range of products that truly represent the cost of living for the average person.
I also agree with yyour earlier comment that while many commodities have come off their highs they are still way up from the prices pre-covid.
Quote:
The Ghost of Arthur BurnsWhen US oil prices quadrupled following the OPEC oil embargo in the aftermath of the 1973 Yom Kippur War, Burns argued that, since this had nothing to do with monetary policy, the Fed should exclude oil and energy-related products (such as home heating oil and electricity) from the consumer price index.
Then came surging food prices, which Burns surmised in 1973 were traceable to unusual weather – specifically, an El Niño event that had decimated Peruvian anchovies in 1972. He insisted that this was the source of rising fertilizer and feedstock prices, in turn driving up beef, poultry, and pork prices. Like good soldiers, we gulped and followed his order to take food – which had a weight of 25% – out of the CPI.
Burns didn’t stop there. Over the next few years, he periodically uncovered similar idiosyncratic developments affecting the prices of mobile homes, used cars, children’s toys, even women’s jewelry (gold mania, he dubbed it); he also raised questions about homeownership costs, which accounted for another 16% of the CPI. Take them all out, he insisted!
By the time Burns was done, only about 35% of the CPI was left – and it was rising at a double-digit rate! Only at that point, in 1975, did Burns concede – far too late – that the United States had an inflation problem. The painful lesson: ignore so-called transitory factors at great peril.
|
|