Via The Big Picture:

We have long railed against the absurdity of the CPI data.

I haven’t “long railed” - more like I railed long ago.

The Consumer Price Index is such a “feel good” number for bond traders, but beyond that, I think it is a fairly useless gauge of the true cost of living.

That line of thinking could be completely off, but at least I’m not alone.

To me, it means a bunch of ultra-massaged, half-made-up-numbers, used to justify altering the cost of debt capital to keep the US economy in “balance.” It didn’t mean much else then, and it doesn’t mean much else now.

For Jeff Matthews’s church, however, it means a 10% increasing in tithings.

Ben Stein is crying out to Alan Greenspan not to raise interest rates too fast. I think I know why.

Mr. Stein claims the “the real pressure on prices has come from increases in the cost of oil and natural gas.” That is not entirely true. Just as big a pressure on most Americans’ cost of living has come from skyrocketing housing prices. Now some folks say “well you don’t HAVE to buy.” And they are correct. In fact, in most major markets it is actually cheaper (after taxes) to rent right now. Rents have simply not kept up with purchase prices. Unfortunately, you can’t just look at the top-line personal P&L.

What we have is a continually higher leveraged American public. And those interest costs are not included in the CPI. “But rates are so low.” It doesn’t matter if you ignore your balance sheet. The fact is, buying an overpriced home at a low interest rate is actually worse for you than buying a home at a deflated price in a high rate environment. Broadly brushed, your payment is the same, but your balance sheet looks much worse - you owe more. Herd mentality took over long ago, and herding always turns out the same way. Bad. Adjusted for inflation, housing prices in major markets have skyrocketed. In the last three or four years, the trend is nearly straight up.

These types of moves never last. Read Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds if you don’t believe it. Despite all the pundits being wrong for the last few years, some highly inflated housing markets are now seeing housing economics favoring the buyers.  I think Ben knows this, as well as the impact it may have on an economy where everyone seems to be a real estate agent or a mortgage broker nowadays. I hope his pleadings don’t go unanswered, even if they are for the wrong reasons.

The San Francisco Chronicle has a fresh piece on inflation. Inflation with a new face gives you the choice between the Producer Price Index (PPI) and the Consumer Price Index (CPI) to fuel your inflation fears.

Which one is best is anyone’s guess, if you believe them at all.

In the simplest terms, the PPI measures the price of a basket of goods manufacturers buy to build plants and keep them running - to produce other goods. The CPI measures the price of a basket of everyday needs. The last PPI release was a monster, while the CPI seemed a little too tame.

If the PPI continues on an upward trend, consumer prices will eventually follow, as manufacturers cannot afford ever shrinking returns on investment. But with so much manufactured outside our fair nation, who knows how this number will really impact.

The CPI, which I commented on yesterday, seems more and more like a crock of malarky. With housing and education prices looking strangely tame, despite what your new mortgage balance and tuition bills say, and health care costs far removed from the basket, it seems as much a credible indicator of inflation as a warm southerly breeze.

To make a long story short, the PPI effect is a dart throw, and CPI could be renamed the BBB, for Babbling Bush (administration) Baloney.

The Department of Labor, part of the fine administration that always tells the absolute truth, has released the latest inflation figures (see Latest Business News and Financial Information | Reuters.com).

Interesting that this report comes straight on the heals of Greenspan warning of more interest rate hikes.

I won’t get into the nitty gritty details of the article, with the exception of one.

Food costs rose just 0.1 percent, as did prices for housing, recreation and education and communication.

Who are they kidding? Housing costs have been on a rampage for years, as has the cost of education. And they show no signs of abating. Maybe the DOL is netting communications costs against those two, and subtracting 5% for shits and giggles.

And one more note - interesting how they always ignore health care costs.