Bernanke's Hidden Inflation

     After being called a dove in the Senate Committee meeting today, Ben Bernanke claimed his inflation record is one of the best postwar records of any Fed chairman.  I thought I would take the time to break down the CPI and then try to look at what inflation really is.  When Ben Bernanke says his inflation record is the best, he is referring to the Consumer Price Index or CPI.  Here is the breakdown of the CPI...

41.4%  Housing
17.4%  Food & Beverage
17%     Transport
6.9%    Medical Care
6.9%    Other
6%       Apparel
4.4%    Entertainment

***TAXES ARE NOT INCLUDED***

     Common sense says that during the first part of the decade, housing was pushing the overall CPI numbers higher and everything else was tame... flat perhaps.  But the last 6 years have seen significant decline in housing.  In fact, the Schiller Index reported today that housing prices are still 29% lower than they were in 2006.  With housing taking up the bulk of the index weighting... it is clear that housing prices being low have kept the CPI number low for the past several years as the Fed continues to print money.  

     The Consumer Price Index is supposed to measure the average outflow of money from any consumer's wallet.  It is supposed to measure how much it costs to live on a monthly basis.  The breakdown makes sense, but by excluding taxes... you miss out on the area where the money printing will eventually catch up.  At some point we will have to pay for the Trillions in dollars printed over the past few years to keep our economy running.  So if Bernanke is trying to steer the economy from short term pain while manage the CPI numbers along the way.... he has performed brilliantly.  Almost like a CEO that has a pile of stock options and wants to inflate the revenues short term.... push expenses out to future obligations.... and make the stock price go up so that he or she can walk away smelling like a rose only to leave the mess for someone else to clean up.

     Bernanke has absorbed all of our prior exuberance into future obligations that will have to be paid off through higher taxes.  He took the problems from banks, automakers, insurance giants, and over spending by the government and buried it deep into the future.  All the while claiming that the CPI record is great!  He then goes on to say that now is not the time to curb spending.  We can deal with the problem later when things  get better.  How they will get better he doesn't know.... just hoping that someone else can fix it later.  Or let someone else take the blame.  Thanks Ben!  Keep kicking the can down the road!