The Convenient Core

We for some time have argued that the Fed errors in ignoring food and energy prices in measuring price change - relying instead on the so-called "core" CPI. It is the headline number that is most meaningful as anyone knows who’s been to the gas station or grocery store.

(Background: Under Nixon, Burns convinced Congress to make the change. Better to fire on all burners as Nixon preferred.)

We are now joined by James Bullard, president of the St. Louis Fed, in an article in that bank’s July/August 2011 Review, Measuring Inflation: The Core is Rotten. "Many of the old arguments in favor of a focus on core inflation have become rotten over the years. It is time to drop the emphasis on core inflation as a meaningful way to interpret the inflation process in the United States," notes Bullard. "One immediate benefit of dropping ....core inflation would be to reconnect the Federal Reserve with households and businesses who know price changes when they see them."

Nice to have you aboard President Bullard and let’s hope for a change in the near term.

If not, then we can expect another disastrous flooding of the economy with unneeded liquidity.

Robert Craven