Inflation flying, CPI up 0.8%

bmiraski — Thu, 14 Aug 2008 14:01:07 +0000

BY BENJAMIN MIRASKI, MEDILL NEWS SERVICE

Bad news seems to be the only news of the day today, unless you work for WalMart. A bad jobs number, housing foreclosures are up and then there is inflation.

The Consumer Price Index was up 0.8 percent in July, double the estimated 0.4 percent for all items. Once again, the culprit was energy and transportation, the bad news boys of 2008. Energy prices were up 4 percent in July while transportation, mostly because of higher fuel prices, rose 1.7 percent.

While this rise is less than that in June, it is still pushing the year over year rate higher, now up to 5.6 percent.

If you want even more bad news, actual inflation might be higher. I spoke yesterday with Barry Ritholtz, CEO and director of equity research at FusionIQ, a noted critic of the CPI. His major complaint is that adjustments that have been added to the CPI have been made to keep the inflation rate artificially low, so we might be underestimating the true inflation rate month after month.

One example he gave was the price of the food basket, which includes all the standard adjustments like substitution and hedonics in the price gathering. That leads to a major discrepancy with data gathered by other sources:

“The BLS has food up 4 percent year over year, the Department of Agriculture has food up 14 percent. Apparently tomatoes are effectively better this season.”

I won’t even mention his comments on what would happen if indoor plumbing were a part of the BLS’s basket of goods. Let’s just say we would have zero inflation because we no longer “crap in the woods”.

The market’s reaction to all this bad data? I think intrepid Medill Money Mavens reporter Holly Fox said it best this morning.

“Today might just suck.”

Photo of tomatoes by Bryan Fenstermacher used under a creative commons license.

Medill Money Mavens » Barry Ritholtz

Inflation flying, CPI up 0.8%