As I review this morning’s financial news, a headline appears US Inflation Accelerates To 7.5%. This piques my curiousity … who says so and how do they know? Further reading reveals that just about everybody says so, but that nobody really knows.
You see, what actually happened is that the CPI rose 7.5%. Last month versus the month a year earlier. CPI stands for Consumer Price Index, which tips us off to the fact that this is a measure of … consumer prices. The “I” stands for “Index”, though the fuzzy minded financial media seem to think it stands for “Inflation”.
So that the CPI rose 7.5% is hard fact. That inflation was 7.5% is … well …
Dear readers, if you haven’t already realized it by now, you can’t take anything you read in the financial media at face value. No wonder the economy is so messed up … economists as a group, despite their scientific pretensions, are just plain sloppy.
We could also complain (and we have before) that the CPI isn’t even a very good measure of consumer prices. But let’s put that can of worms aside for now.
Who decreed that consumer prices equals inflation? If you have a masochistic streak, try for yourself to find out. Try to find the case, the arguments laid out, for why consumer price increases quantify the essence of inflation. Where’s the scholarly analysis, the facts and logic? If you find it, please alert us. We’ve come up empty handed.
What science just assumes things like this? I was taught science was a process of testing and verification, not just careless rhetoric. The only thing proven by most of what passes for “economics” these days is that it’s not to be trusted.
Sloppy thinking has consequences. As I’ve repeatedly pointed out here at Financology, if anything consumer prices are among the last to rise. First come asset prices … bonds, stocks. Only much later do things like wages and consumer prices follow. No need to take my word for it though … for the moment, just ask yourself, what if this is how it works? Have economists excluded the possibility?
This takes us straight back to our core complaint … conventional economics just hasn’t even considered the question. A major consequence of this leap to conclusion would be that policymakers are chronically reacting late. Inflation would already be well out of hand by the time it’s obvious in consumer prices. Because they’re so late, financial imbalances would have built up to dangerous levels by the time policymakers got around to reacting, and the magnitude of the responses required would result in recessions, busts and crises.
Does any of this sound familiar?