Kass: Not-So-Little Lies in Inflation Data

This column by Doug Kass was originally published on Feb. 12 at 8:44 a.m. EST on Street Insight. It's being republished as a bonus for TheStreet.com and RealMoney.com readers. For more information about subscribing to Street Insight, please click here.

On Wednesday at his semiannual testimony before Congress, Federal Reserve Board Chairman Ben Bernanke will discuss the state of the economy. More specifically, he will likely comment on whether the economy can sustain itself free of inflationary pressures that are typically associated with the current trajectory of economic growth.

The level of inflation affects the term structure of interest rates. And the general level of interest rates determines, in part, the value of stock prices.

Most readers know that I believe that the government's inflation figures are bunk, and that the current benign inflationary readings (low) have misrepresented the true rate of inflation (higher).

For some time I have expected a period of "blahflation" (blah economic growth and stubbornly high inflation), and nothing I see through my first-hand observations or through serious quantitative exercises is consistent with the government's currently low inflation readings. (See the discussion of the Cleveland Federal Reserve's inflation calculations below.)

Evidence Contradicts the Readings

For example, this week George Washington University became the first major college to charge over $50,000 per year for room, board and tuition in 2007. The cost of home insurance around the country (particularly in coastal areas) has risen exponentially -- and in certain cases this is actually forcing homeowners to sell their homes. Rental prices of apartments are rising at annualized rates over 3%-5% (office rents at nearly twice that rate!), and food prices are soaring (just look at the higher prices of commodities such as wheat, corn, sugar, etc.).