Friday, March 11, 2011

NY Fed President Dudley: Rising Commodity Prices No Big Deal

New York Federal Reserve Bank President William Dudley in a speech before the Queens Chamber of Commerce and Queens Economic Development Corporation, Flushing, New York City told the audience that:
...while rising commodity prices may be giving some of you a bad headache, they are not likely to lead to a sustained rise in inflation to levels inconsistent with our dual mandate.
This is simply remarkable. From McDonald's to clothing retailers indications are that prices will be raised within months. I am not making this up.

J.C. Penney Chief Executive Myron "Mike" Ullman told Dow Jones Newswires, that because there is a "stress in the system" that hasn't been seen in close to 20 years, "The fact is, apparel prices are going up." Ullman said.

Reuters recently reported:
McDonald's Corp said it would selectively increase menu prices this year to help offset an expected rise in its own grocery bill for the 10 commodities that account for around 75 percent of its food preparation costs.
Dudley's comments are simply not based on the reality of what most retail vendors are saying. It's another case of an econometric view looking at past trends as an indication as to what will happen in the future.

Further, Dudley tends to use "core" inflation, which excludes food and energy prices. The index has no justification for its existence and was created by Arthur Burns at the behest of Richard Nixon, so that he could point to a more favorable price inflation number.

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