What Economists Don't Understand About Inflation (and Consumers Do)

NEW YORK (TheStreet) -- Yesterday's release of the consumer price index for March showed an unexpected increase in both "headline" and "core" inflation as both rose 0.2% for the month, double estimates for an 0.1% increase.

Year over year, core CPI was up 1.7%, while headline CPI increased 1.5%.

Despite the increase, the numbers themselves still appear to be very small and are well within the Federal Reserve's annual inflation target of 2%. Some pundits are telling us that inflation is dead, but I believe that consumers' experiences are telling a different story.

There's always confusion when the CPI figures are released, particularly with the difference between the two numbers and which number is more relevant to consumers. Because headline CPI includes food and energy costs and core CPI does not, consumers will want to pay attention to headline CPI. After all, filling up at the pump and trips to the grocery store are at minimum weekly events for most of us.

Food prices have risen significantly. In March, the food component of the CPI rose 0.4%, following a 0.4% increase in February. Year over year, food prices are up 1.7%, according to the index, and so much of the damage has occurred in the past two months.

The numbers are worse for meats, poultry, fish and eggs, which were up 1.2% during the month, the same rate as in February. Year over year, prices for those products are up 5.1%.

Consumers have no doubt noticed the recent price increases, but their own experiences over the past couple of years may suggest that this is nothing new. "Inflation through deflation" -- my definition of the practice of reducing package sizes of food products -- has become prevalent.

You may not even notice, but it has happened in front of our very eyes. The cereal boxes are getting smaller, there are a fewer Oreos in the package and what used to be a half gallon of Tropicana orange juice is now 59 ounces. The prices, however, remain the same.

More overtly are the price increases in products sold by the pound, such as beef, which recently hit an all-time high. No doubt, the increases here -- and with fruit and vegetables -- are partially the result of drought in parts of the country, and that may improve over time.

Overall, however, I expect that food prices will continue to rise. Seasonal and weather-related causes aside, Fed printing presses on overdrive will continue to lift prices, hitting consumers in the wallet.

Economists may scoff at the notion that rising food prices meet their academic definition of inflation, but just ask the consumer what he or she is experiencing.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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