The iPad will solve all your food and energy needs

I've been consistently outspoken here about my opposition to inflationary Fed policy, largely in hopes that more people would start to take notice and rise up against the overt manipulation of our economy and financial markets. Clearly I don't think that my rantings here have had a broad impact, but it does seem that a wider set of Americans are starting to recognize that inflation (and the policies that create it) benefits a select few at the expense of the majority. From Reuters (emphasis mine):

New York Fed President William Dudley told business leaders in Queens, New York, that the economic outlook has improved in the past six months.

But he said, the Fed is still "very far away" from achieving its dual mandate of high employment and price stability...

Dudley faced persistent questions from the audience on food inflation. The president of the Federal Reserve Bank of New York said people forget that even as the price of food is rising, other prices are falling. He mentioned the price of the iPad 2, prompting guffaws from the audience.

In his speech, Dudley said some of the commodity price rises are likely to be temporary and unlikely to feed through into a sustained rise in inflation.

"While rising commodity prices may be giving some of you a bad headache, they are not likely to lead to a sustained rise in inflation to levels inconsistent with our dual mandate," Dudley said.

Hey, Dudley--you can't eat an iPad, dude. I mean, you could, but... you probably shouldn't.

Yes, you're right, deflation exists and is well-ingrained in many industries and markets, high-tech being one of the most obvious. That's because of innovation, which is something that seems to be in short supply in our country in many other industries. But that doesn't mean that inflation doesn't exist in very damaging ways in other arenas--most notably food and energy, which is incidentally where most Americans spend the majority of their paychecks.

I've mentioned here before how the Fed's focus on "core" inflation is terribly misguided, and this Reuters piece seems to show that many other people are waking up to that reality. We don't buy iPads every day, and that's especially true when we can't afford to eat the way we used to. If non-discretionary costs are rising, we no longer have any money left over to buy the discretionary goods (iPads, etc.), which not only makes that deflationary data irrelevant but in fact drives their prices down, further fueling the myth that inflation is "not widespread".

In short, ignoring food and energy costs in calculating inflation isn't just misleading--it misses the whole point. The prices of discretionary goods are derived entirely by how much money people have left over once they've covered their basic necessities--drive up the prices of the necessities, and the other goods will fall in price. So to look at one without the other is IRRELEVANT. Got it? Okay, cool. That should be a simple concept for a former chief economist at Goldman Sachs, but apparently it's not.

Though, of course, with 14% of Americans already on food stamps, maybe food prices don't matter all that much anyway. All they're really doing is costing our Federal government money, and they've got plenty of that to go around... right?

[Reuters]
(h/t Naked Capitalism)