Saturday, November 10, 2007



In an interview after the hearing, Representative Hinchey discussed the disconnect between official government reports and the reality facing working families. He noted that the unemployment rate does not include workers who have become so discouraged that they’ve given up looking for a job.

And the most popular measure of inflation, the Consumer Price Index, does not include the cost of energy or food, “the two most significant aspects of the increased cost of living for the American people.”

This isn't true. The CPI does include food and energy; the "core inflation" measure does not. It seems increasingly likely that the Fed puts its hands over its ears and says "NA NA NA I CAN'T HEAR YOU" when it comes to the CPI and focuses almost entirely on the core inflation rate when thinking about its monetary policy decisions, and because of this press accounts tend to focus on the core inflation rate as the only thing that matters.

But the CPI does include food and energy costs, and it is the CPI, not the core CPI, which is used to calculate things such as cost of living increases for Social Security benefits (well, specifically a slightly modified measure called CPI-W is used, but it too includes food and energy).

Whether or not the index is calculated appropriately is another question, but it doesn't exclude those things.