Jim Cramer's Best Blogs

First, the big issue, before we even get to the index, the most important component in inflation isn't included in the index -- home prices. We have seen double-digit declines throughout the country and 30% to 40% declines in the big population growth areas. That they aren't included in this index or the consumer price index means that the index is a bit of a canard. If the largest and most important asset you want to buy is down big year over year, how can inflation be soaring? How?

Now, to the components:

The biggest change year over year is in iron ore and scrap steel, up 110% year over year and up 5.2% from June. The best forward indicator of scrap is the biggest scrap steel: Sims (SMS Quote) went from $40 when this index was compiled to $26 today. The stock is even with last year. That's a 35% decline from when this number was created, and it is flat year over year.

The next, crude petroleum, is again a big decline. The price of crude had doubled year over year; now it is up a little more than 50%, but the month to month is incredible, down more than 25%.

Even bigger is the next component, natural gas. It was up 87% year over year, and up 7.8% from June 2008. Now it is down almost 50% from June and is flat year over year.

Now the next three biggies -- soybeans, corn and milk and rice -- are up 84%, 80% and 94% year over year but down month to month. And as Richard Bond, CEO of Tyson (TSN Quote) will say on my show today, "Mad Money at the Half," more than half of those gains are ethanol mandate and ethanol mandate-related (farmers switching to corn because of the subsidies, driving up the other grains because of scarcity of planting). Scrap the mandate, and you'd crater these year over year. Shortening and cooking oil, up 56.5% year over year and up slightly for the month to month, would be down very big without the mandate.