Jim Grant on how interest expense was removed from CPI in 1983

"The Cost of Money Is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly," a scholarly paper published in February by the National Bureau of Economic Research, examines the source of the paradoxical detachment of consumer sentiment, which registered 79.4 on the University of Michigan survey (down from 101 on the eve of the pandemic), from GDP growth, which, in the fourth quarter, printed at an annual rate of 3.4%.

The authors' search leads them to a 1983 overhaul of the Consumer Price Index that eliminated interest expense from the cost of living.  Add it back, and today's inflation data look more like the double-digit shockers that may have cost President Jimmy Carter the White House in 1980.

[...]

"When interest paid is considered as a cost borne by consumers and included in the CPI," write the authors, who include former Treasury Secretary Lawrence H. Summers, "the year-on-year inflation rate increases by one percentage point throughout [2023].  When both personal interest payments and the cost of homeownership are accounted for in the CPI, the [year-over-year] inflation rate increases from 3% to 9% in November..."

~ Jim Grant, "Consumers on the couch," Grant's Interest Rate Observer, April 11, 2024

Marko Papic on price inflation and supply problems

Why do we have inflation?  "Oh, it's Biden's stimulus."  Well, no.  False.  False.  First of all, it's Biden-Trump's stimulus.  Second of all, forget stimulus.  Forget that, that's easy.  You raise rates, done.  Demand gone.  The problem is, we have this plethora of idiosyncratic supply problems that seem idiosyncratic; they seem separate from each other.  But actually there are a cacophony of evidence that's telling you that we have completely dismantled the well-functioning, well-oiled machine.  Supply chain, just-in-time, all this stuff.  And why did we do it?  We decided that global warming was going to kill us tomorrow.  Not in 10 or 100 years.  No, no, tomorrow.  So we need to deal with it right now.  And the problem with that is what we've done is we've starved fossil fuel industry of capital.  We've turned off the capex tap at the same time that we didn't turn off the demand tap.  Like we're not all driving Teslas.  Sorry.  Some of us drive F150s.  So the problem with that is that we have an energy crisis, which is of our own making.  We have a supply chain crisis because five years ago we all thought China was cool; now we all think China is going to kill us.  So now we have to also fight a war with China tomorrow, we have to solve climate change tomorrow, and then finally, of course, Covid... disruptions also created supply chain problems.

~ Marko Papic, interview with Dan Ferris, Stansberry Investor Hour, 37:50 mark, October 31, 2022

Warren Buffett on how accurately CPI measures inflation

I think overall, for a typical young family, the CPI probably underestimates the burden they have faced, in terms of their own living standards.

~ Warren Buffett, "Warren Buffett DESTROYS Consumer Price Index (CPI)," YouTube, May 4, 2022

Bill Bonner on complacency about inflation

Bonner: I do think though that this period of, let's say, still calm inflation, this period where prices are going up (and some places they're going up a lot), but they're not going up as we might expect for money printing the way it's going on.  I think that that's a fake out on the part of the whole system.  It leads the Democratic Party - not just the Democrats, but Republicans, too - to think that they can raise that debt ceiling one more time and keep spending, spending, spending.  That is their plan and nobody ever questions it.  Nobody ever really questions, "How does this work?  Where does this money come from?"

Ferris: Where are all the loud voices of dissent about all of this spending?  They're gone.

Bonner: They're gone.  It's all become a political issue, not an economic issue.  Nobody doubts that you can do this from an economic standpoint, but the question is whether you can get away with it politically, which is a whole other issue.

~ Bill Bonner, "Preparing for the 'Zombie Apocalypse' with Bill Bonner," Stansberry Investor Hour, 25:35 mark, September 23, 2021

Stephanie Pomboy on stimulus and inflation

It seems clear that, if there is a slowdown in demand and spending, they're just going to use it as a rationale to do another round of stimulus...  The inflation is going to be a rationale for more stimulus which will fuel more inflation. 

~ Stephanie Pomboy, conversation with John Hathaway and Bill Strong, 23:45 mark

Janet Yellen: "inflation expectations look quite well contained"

Measures of inflation expectations, I think, look quite well contained over the medium term.  Those expectations are actually the driver of price-setting behavior.  And so it is important that we monitor it carefully, but I believe fundamentally this is something that will settle down.

~ Janet Yellen, Treasury Secretary, interview with CNBC's Sara Eisen, July 15, 2021

Charles Marohn on inflation as measured by the Christmas Cookie Index

In 2019 I created a basket of goods from my annual baking list that I plan to track year-to-year. These are standard items my grandmothers would have used, so it is not like they are going to change in quality or quantity. There are no substitutions, weighting, or hedonic adjustments that apply (if you don’t know what that is, you should); just a standard basket of goods that gives an indication of how much more or less it costs to produce my Christmas cookies each year. I am not using sale prices, as my wife will attest. 

Now I have two years of data and, while that is not in any way definitive—we need some more years to identify a real trend—the Christmas Cookie Index has risen 4.3% in the last year. This is compared to the official inflation rate of 1.2%. 

Here’s the official basket of goods in the Christmas Cookie Index:

I’m not pretending the Christmas Cookie Index is some definitive form of inflation index that should be tracked and reported by the BLS, but I do think it may be instructive over time. We’ll see. Certainly, had I excluded vanilla extract from my list, the index would have been in deflation, but try baking this plate of cookies without vanilla. 

~ Charles Marohn, "The Christmas Cookie Inflation Index," LewRockwell.com, December 8, 2020

Mike Wilson on money supply growth on the risk of inflation

It’s fair to say we have never observed money supply growth as high as it is today. The Fed may not be in control of Money Supply growth which means they won’t have control of inflation either, if it gets going.

~ Mike Wilson, Morgan Stanley chief U.S. equity strategist, "The ballooning money supply may be the key to unlocking inflation in the U.S.," CNBC.com, August 5, 2020

Grant's on public debt, money creation and price inflation

Over the past three months, the public debt has fattened by $2.5 trillion.  Lots of money creation and heavy public spending may or may not guarantee rising consumer prices, but wouldn't we feel silly if a big inflation did come along and we had to tell the grandchildren that they were inheriting long-dated bonds denominated in the very paper that the government had pledged to devalue?

~ Grant's Interest Rate Observer, June 12, 2020

Hank Blaustein, 2012