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Armchair Consumers vs Mama Grizzly

November 9, 2010

Turns out that not everyone with the Wall Street Journal is impressed by Sarah Palin’s comments on the Fed’s quantitative easing strategy. From Palin’s facebook site:

[I]magine my dismay when I read an article by Sudeep Reddy in today’s Wall Street Journal criticizing the fact that I mentioned inflation in my comments about QE2 in a speech this morning before a trade-association. Here’s what I said: “everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher.”

Mr. Reddy takes aim at this. He writes: “Grocery prices haven’t risen all that significantly, in fact.” Really? That’s odd, because just last Thursday, November 4, I read an article in Mr. Reddy’s own Wall Street Journal titled “Food Sellers Grit Teeth, Raise PricesPackagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.”

The article noted that “an inflationary tide is beginning to ripple through America’s supermarkets and restaurants…Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months.”

The WSJ‘s Real Time Economics answers to Palin’s reaction:

Our post on Monday examined the assertion that grocery prices “have risen significantly over the past year or so.” That view is not supported by the facts.

A broad measure of food prices from the Labor Department shows prices rose at an average annual rate of less than 0.6% in the first nine months of the year. September’s increase in food prices — 1.4% for food and beverages at an annual rate — was low by historical standards.(In fact, the lowest average annual inflation rate on record was 1.4%, in 1992.) Commerce Department inflation data show a similarly slow year-over-year increase for food prices, 1.3%.

While some items in the shopping cart have risen in price (ground chuck beef is up 4.8%) and others have decreased (bananas are down 5.3%), overall food price inflation has been historically low for the past year. This is not surprising. Weak demand, high unemployment and thrifty shoppers have led retailers to keep many prices from rising despite the rising cost of some commodities, including coffee and sugar.

The Nov. 4 Wall Street Journal article noted “the tamest year of food pricing in nearly two decades.” It does indeed report that supermarkets and restaurants are facing cost pressures that could push their retail prices higher — but it hasn’t happened yet on a large scale. Critics of the Fed’s quantitative easing policy are focused primarily on concerns about potential future inflation. [Emphasis original.]

There are two issues here, one is the timing (“over the last year or so”) and the other is the meaning of the term “significantly”.

As for the timing, it’s obvious that Mme Palin isn’t trying to be scientific in that specific assertion. “Over the past year or so” is just an expression to give an idea of a subjective experience. Palin also makes it clear that she’s not as worried about current inflationary rates than about future ones. RTE claims to see Palin trying “to draw the concerns about quantitative easing to inflation today”. That I don’t agree with. Actually, Sarah Palin highlighted in her remarks what every American with a limited budget is experiencing these days: a felt increase of prices. She uses this to give an idea of how bad serious inflation can be and how important it is to prevent it from setting in. The message is, if you’re feeling the price increases now, know that QE2 can make things much, much worse.

Which leads us to the word “significantly”. RTE contends that because inflation indicators show very little upwards movements during the last year, it’s wrong to say that prices have increased significantly. Here the French Cowboy detects the distance between number-crunching economists (shall we call them “armchair consumers”?) and those folks who don’t follow the development of consumer price indices but simply go from aisle to aisle in their local grocery store and find it increasingly difficult to find something they feel they can afford.

It’s little solace that statistics show only small price increases if you’re a belt-tightening family that finds the price tag on its own consumer basket growing. What the lagging macro-economic proxy statistic tells you needn’t coincide with your personal situation. Keep in mind also that a price can technically stay the same but increase in relation to your income if, eg, you become unenmployed.

My impression is that RTE has been looking for a flaw in Palin’s way of illustrating the situation and found it by misinterpreting a message that was between the lines. “There’s been felt inflation over the past year or so”, Palin is basically saying, “quantitative easing risks to exacerbate this situation.” RTE is splitting hairs in claiming that Palin confuses potential inflation due to QE2 with price developments over the last year “or so” (!).

Compared to this inaccuracy — that only exists if you accept RTE’s interpretation — big name politicians like Nancy Pelosi (‘unemployment benefits are the biggest stimulus’), Barbara Boxer (Senator Say Anything), and even the Greatest Communicator President Obama (jobs saved or created, shovel-ready public works, tire inflation etc etc) are getting away with murder.

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