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**JANUARY 13, 2023**

Kuttner on TAP

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**** The Misleading Reporting on
Inflation

The coverage overstates the problem, feeding the narrative of a
necessary recession.

If you saw the good news about declining inflation rates, from the
December report on the Consumer Price Index
<[link removed]>, you read
that inflation declined from a 7.1 percent rate in November to 6.3
percent in December. Except that's not what happened.

The actual inflation rate in December was minus 0.1 percent. And for the
last six months, prices have risen by a total of just 1.9 percent, or
below the Fed's target of 2 percent.

But if you read the New York Times
<[link removed]>
story, you learned that "[t]he Consumer Price Index climbed 6.5 percent
in the year through last month, down from 7.1 percent in the November
reading."

Or, if you prefer

**The Wall Street Journal**, their version was "The Consumer Price
Index, a measurement of what consumers pay for goods and services, rose
6.5% last month from a year earlier, down from 7.1 % in November and
well below a 9.1% peak in June."

Other major news outlets played it the same way. Obviously, if inflation
is still running at 6.6 percent, the Fed needs to keep raising rates.
But the true monthly inflation rate is the price rise (or in December
the decline) in that month, not the comparison with the price level of a
year ago. And by that accurate measure, the recent inflation bout is
over and it's time for the Fed to cut rates.

This misrepresentation is journalistic malpractice, and it both reflects
and reinforces the hawkishness of the Fed milieu and those who cover it.
The Fed culture rewards writers who are alarmist about prices. They get
access. They get called on at press conferences.

If you take a closer look and examine the December CPI report sector by
sector, leaving out food and energy (which are more volatile month to
month), you find that core inflation rose at an annual rate of 2.4
percent in November and 3.6 percent in December, or close to the
historic norm.

But even that good news is badly overstated because housing makes up
more than a third of the core CPI. All commercial indexes show that
housing costs are coming down, but the official report showed them
rising 0.8 percent in December, or an annual rate of 9.6 percent,
because government statisticians use an out-of-date indicator of the
imputed rental value of owner-occupied housing.

This is a little complicated, but it is not rocket science. It would be
a public service if our financial writers reported and explained these
numbers accurately, and not in the Orwellian idiom of Fed-speak.

~ ROBERT KUTTNER

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