FED minutes out tomorrow.. a few remarks on CPI.

in inflation •  3 years ago 

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The notion that "core inflation" excludes energy costs is extremely misleading, if not chimerical.

Higher prices for oil, natural gas and electricity made from coal or gas affect much more than what is described as "energy" in the consumer price index.

The CPI "less energy" excludes only two goods (gasoline and fuel oil) and two services (electricity and natural gas service to homes). Together that amounts to 7.4% of the CPI, but that is only a trivial fraction of actual consumer costs of energy.

Higher prices for crude oil and natural gas and coal inflate the cost of producing, packaging and transporting a huge array of products -- such as farm fertilizer, petrochemicals, polypropylene, paper, metals and asphalt. Higher oil prices also inflate the cost of many services such as airlines, busses, subways and cruise ships.

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