Hi TJ, I didn't forget you, it's just been a long time since I came across one of these..... <g>
Current market action is producing causation problems for some economists due to China's voracious commodity appetite. Surging cement, oil, copper and other industrial commodities, as well as near-capacity freight loads, used to mean that the US economy was jiggy. That is no longer the case due to China. It's amusing, if not hypocritical, that many of the same economists and gurus who, during the tech bubble, pronounced the US industrial economy either dead or irrelevant due to the 'new paradigm', now hail the China-induced boost to US manufacturing as the sine qua non for a US economic boom.
Some permabulls are attacking Bill Gross for joining us reprobates that aver that the BLS has no clothes on its CPI. One critic admonished Gross for denigrating such an important economic statistic. But the critic's lame exercise is easily refuted by just reading the BLS's web page on CPI. The multitudes of items that are hedonically adjusted are listed. Perhaps our favorite passage is the one whereby the BLS states that any sharp or abnormal price increase is ignored. And we don't have to get into substitution or sampling, do we?
Still not convinced? We must then direct you to an item we highlighted over a year ago. The WSJ's Jeff Opdyke in a 5/12/03 article asked: "If the Federal Reserve is so concerned about deflation, why are so many of the everyday costs of life on the rise?" But the death blow for permabulls and permadeflationists is this admission: "Even Pat Jackman, economist at the Bureau of Labor Statistics, which calculates the official inflation rate, says the widely reported numbers understate the rising cost of life from one year to the next. The fact is, he said, 'more money is coming out of your pocket.'"
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