Cold and Hungry

The Fed often gets roasted for excluding food and energy in its policy discussions about inflation. Is this fair?

Of all the Fed’s comments, one of the most irritating is their focus on “core” inflation, excluding food and energy. Don’t these folks eat or drive?

It’s not accurate to say that food and energy make up a small portion of consumer budgets. The Cleveland Fed recently studied this. They found that median households spend 17% of their budget on food and energy, and the poorest fifth spend about 20% on these items. Clearly this is a significant amount.

So why does the Fed cut them out? It has to do with forecasts. Over time, the best forecaster of overall inflation is core inflation. And the Fed tries to use data that look forward rather than backward.

Still, it’s irritating for them to discuss an inflation measure that excludes something we spend one fifth of our money on. So they’ve recently changed their terms: instead of core inflation, they’re now talking about medium-term inflation. The measurement is the same; only the label has changed.

But I don’t think it will help. Shakespeare asked, what’s in a name. He concluded, not much. You can’t make people happy by re-labeling what upsets them.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-11T13:52:53+00:00 March 23rd, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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