Reply #76: here's some more regarding how the CPI doesn't measure [View All]

[UpInArms]

correctly:

from:

http://www.marketwatch.com/news/print_story.asp?print=1&guid={863AAC47-93F8-4600-B400-B23F2A37CC6A}&siteid=mktw

excerpt:

U.S. financial markets initially rallied Friday on the mild core inflation numbers. But several economists pointed out that the tame core rate seemed unbelievable.

"This appearance of tame core inflation will not fool the FOMC into pausing" at the Nov. 1 meeting, said Stuart Hoffman, chief economist for PNC Financial.

For one thing, the Labor Department said hotel prices fell a record 2.5% in September. The decline "simply defies reality," said Stephen Stanley, chief economist for RBS Greenwich Capital. "Every anecdotal report over the last six months on the topic indicates that hotels are full and rates are rising."

The CPI report also showed that the cost of owning a home rose 0.1% in September. "Need I detail how silly this is?" said Barry Ritholtz, chief market strategist for Maxim Group. "Home prices are up dramatically, and recently we see that mortgage rates have ticked up significantly."

The Fed is well aware that the CPI has a significant conceptual problem with accurately measuring housing costs, which is one of the main reasons it prefers to look at a separate inflation gauge published by the Commerce Department known as the personal consumption expenditure price index.

These are no small matters, because shelter accounts for 33% of the CPI, far more than gasoline's 4% share.

Statistical anomalies aside, core inflation remains "downright cool," said Leslie Preston, an economist for CIBC World Markets.

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