Sunday, June 15, 2008

#131 - Luxury Prices Down... IT'S A BAD THING

Hey Guys,

I hate economists and how they manipulate the numbers reality. I was listening to PBS Nightly Business Report and they had an economist arguing that the Core inflation rate (inflation - Gas/Food) isn't that bad cause prices of clothes and cars are going down. This is a utter distortion of the price changes going on in the economy. Here are the correct implications of what's going.

Gas/Food Prices go up - This is a bad thing, cause when the necessities of a nation go up in price it limits the discretionary spending which quickly kills a lot of businesses.

Clothes/Car Prices go down - This is a bad thing cause it reflects the drop in demand due to increasing prices in necessities.

Still, Core Inflation isn't a useless indicator since you can pinpoint the source of inflation by comparing to true inflation. If Core inflation shows that the bulk of inflation was in consumer products that would be a good indicator of a growing economy but when the bulk of inflation is in commodities/neccessities then your looking at price changes that hurt peoples baseline standard of living.

Prices change, but I guess it's more important to understand which prices changed and why, yet core inflation is increasingly becoming a tool to breed false optimism about the economy.

No comments: