Friday, June 13, 2008

If you ignore the bad news, everything's fine.

Washington Post:

The inflation rate shot up in May at the fastest pace in six months, pushed higher by soaring costs for gasoline and other types of energy.
But don't worry, it's not that bad! Really!
Core inflation, however, which excludes energy and food, edged up a more moderate 0.2 percent in May. That increase was right in line with expectations and should help relieve worries that the big increases in food and energy could be breaking through to more widespread inflation.
See? Once you exclude unnecessary luxury items like food and gasoline, it looks much better! And it's not like those are things regular people ever buy... And really, if you can't cut a few unnecessary luxuries out of your household budget during a nonrecession, you're just not trying.

I understand excluding the volatile components if there's been a one-time event... When Katrina shut down Gulf Coast refining, there was a spike in gas prices but everything else was pretty much unaffected. Likewise, it helps to look at the less-volatile components if we're swerving back and forth between "OH NOES THE SKY IS FALLING" and "Nothing to worry about, things are great, in fact some more inflation wouldn't hurt."

But to pretend that we can just exclude things that are rising consistently, repeatedly, and pervasively, for reasons having much more to do with market fundamentals than random fluctuations, is disingenuous at best and useless otherwise.

And businesses are getting squeezed by fuel costs, meaning anything that has to be shipped by truck is going to go up. Airline tickets are already going up (same story), and the Wall Street Journal reports that some businesses are no longer outsourcing, but returning production to the US because of transportation costs. The only reason they haven't raised prices is that the market won't bear it yet. The grocery business runs on razor-thin profit margins, so higher costs had to be passed along almost immediately. Higher-margin businesses have a little more breathing room, but not much, and they're running out of space. But hey, that's only if you actually, you know, need to eat.

Dismal science, indeed.

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