Thursday, August 16, 2007

Why Bernanke isn’t guaranteed to cut Fed funds rate to bail out housing market

The Federal Reserve chief still has inflation fears to worry about.

As the chart below shows, oranges, eggs, frozen juice, milk and apples — five of the most common family food purchases — are the five most inflated foodstuffs over the past year, with prices on all inflating at least 10 percent.

While the government leaves food, and energy, out of its core inflation forecasts due to “volatility” concerns, a 12-month time span is enough time for any “volatility” to drop out. This is real inflation.

And, W., like his daddy, just doesn’t seem to “get it” about inflation:

Meeting with economic writers last week, President Bush dismissed several polls that show Americans are down on the economy. He expressed surprise that inflation is one of the stated concerns.

“They cite inflation?” Bush asked, adding that, “I happen to believe the war has clouded a lot of people’s sense of optimism.”

Food prices and the folly of corn-based ethanol production are the main drivers of food inflation.