The Misleading Reporting on Inflation

Today on TAP: The coverage overstates the problem, feeding the narrative of a necessary recession.

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If you saw the good news about declining inflation rates, from the December report on the Consumer Price Index, you read that inflation declined from a 7.1 percent rate in November to 6.3 percent in December. Except that’s not what happened.

The actual inflation rate in December was minus 0.1 percent. And for the last six months, prices have risen by a total of just 1.9 percent, or below the Fed’s target of 2 percent.

But if you read the New York Times story, you learned that “[t]he Consumer Price Index climbed 6.5 percent in the year through last month, down from 7.1 percent in the November reading.”

Or, if you prefer The Wall Street Journal, their version was “The Consumer Price Index, a measurement of what consumers pay for goods and services, rose 6.5% last month from a year earlier, down from 7.1 % in November and well below a 9.1% peak in June.”

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Other major news outlets played it the same way. Obviously, if inflation is still running at 6.6 percent, the Fed needs to keep raising rates. But the true monthly inflation rate is the price rise (or in December the decline) in that month, not the comparison with the price level of a year ago. And by that accurate measure, the recent inflation bout is over and it’s time for the Fed to cut rates.

This misrepresentation is journalistic malpractice, and it both reflects and reinforces the hawkishness of the Fed milieu and those who cover it. The Fed culture rewards writers who are alarmist about prices. They get access. They get called on at press conferences.

If you take a closer look and examine the December CPI report sector by sector, leaving out food and energy (which are more volatile month to month), you find that core inflation rose at an annual rate of 2.4 percent in November and 3.6 percent in December, or close to the historic norm.

But even that good news is badly overstated because housing makes up more than a third of the core CPI. All commercial indexes show that housing costs are coming down, but the official report showed them rising 0.8 percent in December, or an annual rate of 9.6 percent, because government statisticians use an out-of-date indicator of the imputed rental value of owner-occupied housing.

This is a little complicated, but it is not rocket science. It would be a public service if our financial writers reported and explained these numbers accurately, and not in the Orwellian idiom of Fed-speak.

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