Registered Investment Adviser Caleb Lawrence
The major averages enter the final hour mixed after a slightly lower opening. The August Consumer Price Index or CPI advanced .4% on gains in energy and shelter costs. On a year ago basis the rate increased to 1.9% a 3-month high, but remains below the Fed’s desired 2% target.
The Fed’s targeting of 2% inflation means that prices will effectively double every 36-years based on the “Rule of 72”. A great deal of debate goes on regarding the inflation data. Many would argue that it is wildly inaccurate and underreported particularly with respect to asset prices like real estate. Based on MIT’s Billion Prices Project I think the inflation data is fairly accurate. The arbitrary targeting of some value is suspect, in this case 2% as it can be argued that nobody really knows what the inflation rate should be despite endless surveys and proclamations to the contrary. Though as a general rule the deeper in debt a person or entity is, such as the government, the more desirable inflation is as it erodes the value of the currency used to pay back the debt with over time. Recent pieces on the subject of inflation in both the Wall Street Journal and Bloomberg citied the now discredited Phillips Curve regarding inflation and expectations of. Given the mainstream media and the Fed’s track record on inflation, asset bubbles, debt, and interest rates one has to take discussions of these subjects with a grain of salt, or three.