Assessment: Eventually they will simply remove the word inflation and all problems will go away …
Earlier this year, ,when inflation was still “transitory” two Fed chairs, Powell and Bernanke, made comments which we joked only make sense if the definition of inflation is changed, to wit.
*POWELL:FOMC PREPARED TO ADJUST POLICY IF EXPECTATIONS GO BEYOND
By changing the definition of PCE (personal consumption expenditures) and CPI (consumer price index)
*BERNANKE: COMMODITY PRICES WON’T ADD TO INFLATION GOING FORWARD Why? Are we changing the definition of CPI again …
“And do not harm the oil and wine” Rev. 6:6
Sadly, our feeble attempts at humor were not unjustified, and as any economic history buff knows the US dramatically changed how it calculates consumer inflation back in the 1980s, an event extensively covered by AllianceBernstein former chief economist Joseph Carson on this website in the past (see “Consumer Price Inflation: Facts vs. Fiction“) with the most important difference being that while the CPI of the 1970s included house price inflation, the current measure does not.
Instead, home price pressures have been swept in the purposefully nebulous Owner-Equivalent Rent which can be whatever politicians wants it to be (there have been other definitional changes, see here, here, here and here for more). Bottom line, however, is that if today’s CPI did include house prices in its measurement, the currently reported inflation numbers for house price inflation would push CPI (and core CPI) to double-digit gains.
Of course, it is politically inconvenient to report true inflation – just see what happens in any banana republic where society is fed up with runaway inflation. It’s also why politicians on both sides of the aisle are always eager to tweak the definition of inflation ever so slightly (or not so slightly) so it appears to be less than it truly is. After all, for them masking reality is a matter of political survival.