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Easy Al's 1% Wonder

Yet again, the Fed Chairman reinforced the concept of the "Greenspan put" with Tuesday's FOMC announcement. The fed funds rate will remain artificially low for as long as necessary. Go to it!

Investors, pile on the carry trade or buy some beta. Consumers, go refinance the old homestead for a third time, extracting an extra 10 grand for that Caribbean vacation you deserve. Or dump that 3-year-old SUV for a brand spanking new Hummer.

We have evolved from a manufacturing economy to a service economy to a finance economy, where people can borrow and spend their way to prosperity. You see, inflation is negligible and those 0.50% money rates implore you not to save. It all sounds fine, except for the fact that inflation is not quiescent.

I know, I read the paper like everyone else. The government says that the consumer price index is some low number like 1% or 2%, and the risk of menacing deflation is a legitimate concern. The government would never fudge something as important as the CPI, would it? But that number just doesn't smell right.

Where's the Deflation?

Most of the goods and services I consume seem to be escalating in price by much more than a percent or two. My tuition bills, health care premiums, insurance costs, transportation and energy costs, home-operating expenses, are all increasing at high-single-digit or maybe even double-digit rates. Home prices in my neighborhood are skyrocketing. As for entertainment, the restaurant check, the movie tickets and the cable bill have all jumped much more than a couple percent. Deflation here? Give me a break.

With my personal inflation experience so much different than government statistics, I decided to research the CPI. Here's what I discovered. First, the government removes food and energy, about 22% of the index, when calculating the core CPI. I guess if you don't eat, drive or heat your home, this would be appropriate.

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