For most fields of study, the goal is to progress ideas and seek truth. This doesn’t seem to be the case in economics.
It’s not just the Fed; it’s the entire global community. The Central Bank of Sweden recently shared a press release showing they have similar concerns to the Fed and want to facilitate the “supply of credit” while striving to hold market rates down. The bank further stated the difficulties faced with interpreting its inflation statistics during times of pandemic, noting:
For one thing, prices have been lacking for certain goods and services, as these have not been consumed, and for another thing the actual consumption by Swedes during the pandemic does not correspond to the weights in the consumer price index. Quite simply, the Swedish people have bought more toilet paper and fewer trips abroad than the weights in the consumer price index imply.
The problem with measuring “inflation” has also been expressed by the Bank of Canada. It’s not just the relative weights which are problematic, but also the volatility of the data that impacts the “inflationary experience” of the Consumer Price Index sample size, making interpretation difficult:
in any given month, the CPI can be quite volatile and not reflect its long-term trend. That’s because prices of items such as fresh fruit and vegetables or gasoline can jump around a lot, affecting the CPI.
Especially since “these aren’t normal times,”
Canadians are spending much less on gasoline and air travel, and more on food purchased from stores. And until very recently, they weren’t spending anything on haircuts. The implication is that the CPI isn’t fully reflecting people’s current inflationary experience.
In formulating an arbitrary basket of goods to include items such as gasoline, fruits, vegetables, and toilet paper and then assigning an arbitrary weight of relative importance to these items, central bankers obsess over consumer prices while ignoring asset prices such as those of stocks, bonds, and real estate.
