The Economist reports that inflation in America increased to 4.2% over the course of the year. In Britain, the CPI index rose from 3% to 3.3%. CPI metrics aside, higher energy prices are kicking consumer prices. Every where I look, I see higher prices. Higher prices are all the fad lately. I guess that's why economists call it inflation.
Many criticize the CPI for excluding food and energy from the market basket. They contend that the PCE, Personal Consumption Expenditures, is a better measurement. I argue that the CPI is older and consumers form rational expectations more accurately with the old, trusty economic barometer. Plus, it takes less time to learn what the CPI means since so many pundits write about it. The CPI might not be perfect, but at least it's consistent.
As one of my idols, John Maynard Keynes, said, "I'd rather be vaguely right than precisely wrong."
As George Box said, "All models are wrong, but some are useful."
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