A question on inflation

[kappys]

Just some questions on inflation, not saying that its going to happen but generally speaking since the removal of the gold standard inflation has often been judged against the USD rather than gold or commodities. Since the USD and Euro seem to be struggling what becomes the new benchmark for inflation. These 2 currencies represent the reserve currencies of the world. A quick answer is the Yuan or Yen - but both of them seem to be struggling as well. Granted the Yen is gaining on the dollar and will probably continue to do so but the overall Japanese economy may slow down as well. If that's the case then there will be another handful of currencies that I think will do well such as the Rupee and some South American currencies.

But what do you measure inflation against? If we are to compare it to commodities(oil, food, gold) then we've already had serious inflation for a year or more. If we are comparing to other currencies then in some respects its been going on even longer.

Any thoughts? I know that there are plenty of conventional inflation definitions. I am wondering if the official usage now refers mainly to monetary inflation(printing more money) or purchasing power(which has already declined IMO), or if there is some other standard that most people are using.

[Bob]

Good question, I dont know, but do know that how the government comes up with the official inflation number , that number is caculated without including more volatile items like food and fuel -- where those items were used back in the late 1970's. So that way when Social Security checks are adjusted yearly and the numbers are lower than the actual rate of inflation.

[elsid13]

Originally Posted by Bob

Good question, I dont know, but do know that how the government comes up with the official inflation number , that number is caculated without including more volatile items like food and fuel -- where those items were used back in the late 1970's. So that way when Social Security checks are adjusted yearly and the numbers are lower than the actual rate of inflation.

The Commerce Department ( http://www.bea.gov/index.htm) has division that track prices on "basket" of average American purchase monthly. What they do is actually send folks into the field across the country with scanner to measure what the item cost last month and what it cost this month. Also the individual departments like Social Security Administration also have branches whose jobs it is to project COA, that usually occurs 13 months before the first checks are cut. That done because of the budget cycle.

HAVE TO CORRECT IT LABOR NOT COMMERCE (MIND NOT WORKKING TONIGHT)

[Bob]

Originally Posted by elsid13

The Commerce Department ( http://www.bea.gov/index.htm) has division that track prices on "basket" of average American purchase monthly. What they do is actually send folks into the field across the country with scanner to measure what the item cost last month and what it cost this month. Also the individual departments like Social Security Administration also have branches whose jobs it is to project COA, that usually occurs 13 months before the first checks are cut. That done because of the budget cycle.

So is it fair to say that the way the government measures inflation has changed? I dont think they include food and fuel into the mix any more for their official numbers...

[elsid13]

Originally Posted by Bob

So is it fair to say that the way the government measures inflation has changed? I dont think they include food and fuel into the mix any more for their official numbers...

Yes and no. They still measure both, but when they report the numbers as part of the CPI (http://www.bls.gov/cpi/) the report both the core and core plus. See below. (http://www.bls.gov/cpi/cpiqa.htm)

Has the BLS removed food or energy prices in its official measure of inflation?No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI.

Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners and Clerical Workers (CPI-W). Individual income tax parameters and Treasury Inflation-Protected Securities (TIPS) returns are based on the All Items CPI-U.

[cutthemdown]

Because we use dollars what a dollar will buy will always be USA benchmark for inflation. Why would we want to use anything but what our currency will by us?

The good news is that gas and diesel are getting cheaper and that will help Americans big time with inflation. Truckers can ship for less, stores can sell for less, it costs less to drive to work and to the store to buy.

Hopefully oil stays low but I'm not convinced, I see OPEC doing a huge cutback to get prices to stay at 90 a barrel.