Are prices really rising much faster than the official data show? Consider that the percent change from a year ago in the index of compensation per hour (part of the labor department data on productivity and costs) keeps running at about 2 percent. You have to believe one of the following:
1. This measure of the growth in labor costs is itself being distorted by sneaky government statisticians, and compensation is actually growing at a much higher pace.
2. With prices rising faster than official measures, real compensation costs are declining dramatically. In which case,
2a. Productivity is also declining dramatically, or
2b. Business profitability is soaring
3. The official measures of inflation are not hiding significant inflation.
My money is on (3).
Unless it is 2b.
“Labor costs have been essentially flat between the end of the Great Recession and the first quarter of 2014. Profits earned per unit sold, on the other hand, have been rising at an average annual growth rate of nearly 9% since the start of the recovery.”
http://blogs.wsj.com/washwire/2014/06/06/no-inflationary-pressures-stemming-from-labor-costs-just-yet/
If profits are 20 percent of a prices (a very high estimate), then profits up at a 9 percent rate while labor costs are flat would mean that prices go up at a 1.8 percent rate.
My buddies around the burn barrel tell me CPI excludes food and energy. The hedonic adjustment factor is, in my opinion, too generous.
Your buddies are wrong. Food and energy are included in the headline number for the CPI. However, because some desire to use the CPI to measure the effects of monetary policy, and because food and energy prices are heavily driven by other things (e.g., war in the Middle East, droughts, etc.), there is also something called core CPI, and it is core CPI that excludes energy and food prices.
Good to know.