Lies, Damn Lies and Krugman

Yesterday, Fed Chairman Ben Bernanke spoke in Atlanta, before the International Monetary Conference. During his speech, Bernanke discussed price inflation. This is what Krugman pulled from the speech:

Ben Bernanke makes an interesting point: never mind core inflation, basically the acceleration in headline inflation is all about just one good, gasoline. Take out gas prices, and inflation was only 1.2 percent over the past year.

But Bernanke also said this, which Krugman did not report:

As I noted earlier, the rise in commodity prices has directly increased the rate of inflation while also adversely affecting consumer confidence and consumer spending. Let's look at these price increases in closer detail.

The basic facts are familiar. Oil prices have risen significantly, with the spot price of West Texas Intermediate crude oil near $100 per barrel as of the end of last week, up nearly 40 percent from a year ago. Proportionally, prices of corn and wheat have risen even more, roughly doubling over the past year. And prices of industrial metals have increased notably as well, with aluminum and copper prices up about one-third over the past 12 months.

And as for the data Bernanke pointed to on gasoline prices, this is the footnote Bernanke included in the prepared part of his speech :

Through April, personal consumption expenditures (PCE) inflation over the previous six months was 3.6 percent at an annual rate; excluding gasoline, inflation over that period was 2 percent. Over a 12-month span, inflation through April was 2.2 percent; excluding gasoline, it was 1.2 percent

So Krugman is at best distorting the truth here, Bernanke did not say, as Krugman writes (my emphasis):

 ...basically the acceleration in headline inflation is all about just one good, gasoline.

The data Bernanke provides shows that more than 50% of inflation is not caused by gasoline. Further, Bernanke said as much during his speech:

As you all know, over the past year, prices for many commodities have risen sharply, resulting in significantly higher consumer prices for gasoline and other energy products and, to a somewhat lesser extent, for food.

Got that? Gasoline prices are leading the pack higher, but they are not alone. Gasoline prices are up 33.3% over the last year. No wonder they are a strong influence on the CPI. If all prices were climbing at that rate, we would be in Zimbabwe land. When Bernanke says that gasoline is having a huge impact on the CPI, it does not mean other prices are not going up. Over the last year consumer meat, poultry and fish prices are up 7.6%. Dairy is up 6.3%. These are obviously staples. This is why prices "feel" higher than the lowball CPI numbers, because the things we truly buy on a daily basis are going up! And to sluff this off as "only gasoline" is absurd.

But Krugman is only warming up. He then writes after his "it's only gasoline" proclamation:

This raises the question, how often do we see gas price rises on the scale we’ve experienced lately? So here’s a chart; I start in 1985 so that the energy crises of the 70s and early 80s don’t make more recent swings invisible:

He then smugly writes after posting this chart:

The answer is, they happen all the time.But somehow this one — unlike the five comparable price spikes that have taken place recently — is all the Fed’s fault, and is an omen of runaway inflation.

But what is this chart? It's a chart of the volatility of the gasoline price. Krugman is implying that the volatility in the gasoline price means there is no significant climb in the price of gasoline. It's just all about volatility. Well, here's the price of gasoline over the same period that Krugman uses for his the volatility chart. It shows clearly the uptrend in the gasoline price (aside from expected dips during recessions):

Bottom line, Krugman completely distorts the price inflation picture. When he, Bernanke and others say, "Well it's mostly about gasoline," one better hope so, since gasoline is up 33%. Compared to that, the spike in meat and fish of 7.6% and the dairy price spike of 6.3% are relatively smaller. But there is nothing small about absolute year-over-year price increases of 7.6% and 6.3%.

Yes, Krugman is quite the magician, but when the tape is rewound and slowed down a bit, Krugman's sleight of hand becomes obvious. The man is a shill for the Fed. He plays down the price inflation that is here and the accelerating trend in price inflation that is developing.