The PI’s Don’t Have It

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.

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