If Inflation Falls in
the Forest…
If we listened to the media, no one
would have heard the biggest price decline in 56 years.
By Noel Sheppard
Free Market Project
Dec. 21, 2005
    Ever
since Hurricane Katrina made landfall in late August sending oil
prices to $70 per barrel and gasoline above $3 a gallon, the media
have been in a panic over a return of ’70s-style inflation. Such
concerns reached a fevered-pitch in October when a gauge of consumer
prices rose by the largest amount in 25 years. Yet, when the Labor
Department released numbers last week showing that inflation had
declined by the greatest percentage in 56 years, rather than
using this data to ease the public’s concerns about rising prices,
the press either downplayed the report or totally ignored it.
    Back in October, when the September consumer price
index (CPI) jumped by 1.2 percent, media reports were full of
phrases like “Hurricanes Katrina and Rita helped make energy prices
soar in September at the fastest rate on record,” and “Inflation in
September was the highest since 1980.” Two months later when the
November CPI fell by 0.6 percent, the greatest amount since Harry S.
Truman was president, one prominent paper’s headline simply read
“Price Index Shows Big November Drop.” Maybe most important, few
media made it clear to the public that core prices have only
increased by 2.1 percent since last November, an annual rise quite
similar to what has been transpiring for many years.
    The worst offender in disparate coverage of these
reports was CNN. Virtually every CNN program on October 14 discussed
the September CPI report. From “American Morning” early on Friday to
“In the Money” on Saturday, the cable news channel was all over this
story. On “Lou Dobbs Tonight,” Dobbs began this segment: “Tonight
middle class Americans and those who aspire to the middle class face
a growing cost of living crisis. Inflation last month up at the
fastest pace in 25 years, while wages are falling.”
    Correspondent Christine Romans entered the discussion:
“The ingredients of middle class life are getting more expensive by
the day. Gasoline, fuel oil, fruits and vegetables, medical care,
education, all slashing American spending power.” Romans finished
the segment on a cheery note: “And when you adjust those earnings
for these higher prices, Americans' earnings fell in September.”
    Another such pessimistic discussion occurred the
following day on “CNN’s In The Money.” Sitting in for Jack Cafferty
was Susan Lisovicz, whose conversation with guests Christine Romans,
and Fortune magazine editor-at-large Andy Serwer began: “Well, gang,
if you've put gas in your car over the last 30 days or, so you
already knew this, but the government just gave us confirmation on
Friday, CPI, consumer price index, highest in 25 years?”
    Romans responded by mocking what is referred to as the
“core rate,” a number that analysts focus on because it doesn’t
include highly volatile energy and food prices: “And what I say is,
can you strip out food and energy in your budget? I don't think you
can strip food and energy from your budget.”
    Serwer also discounted the core rate: “I love the fact
that economists don't eat or drive. That always cracks me up.” He
concluded: “There is inflation and, you know, if the Federal Reserve
is concerned about inflation, why shouldn't we be?” As an editor for
a leading financial periodical (Fortune magazine), Serwer should
understand the Federal Reserve’s concern for the core rate better
than this. As demonstrated after Katrina hit, energy prices can be
extremely volatile and impacted by exogenous events. So can food
prices, which can rise dramatically due to a drought in the Midwest
for example.
    As such, the Federal Reserve does not want to base
monetary policy on economic events that can be short-lived. This is
why the Fed pays much more attention to the core rate of inflation
to determine if price increases from food and energy are making
their way into the rest of the economy. Given that core prices have
only risen 2.1 percent in the past twelve months, with energy prices
returning to the same levels they were at before hurricane season
began, it appears that the Fed’s reasoning is quite sound.
    Yet, since last Thursday’s announcement that consumer
prices in November declined by a greater percentage than since
shortly after World War II ended, CNN made only one reference to
this report through December 18, according to a LexisNexis search.
As amazing as it might seem, that’s all the time “The Most Trusted
Name in News” devoted to the largest decline in consumer prices
since most of its employees were likely born.
    The broadcast networks didn’t do much better. When the
September numbers were released on October 14, the “NBC Nightly
News” actually led with this inflation report. As Americans turned
on their television sets after dinner that Friday evening, Brian
Williams greeted them with: |

Audio |
Video |
“Tonight, the lead story is the economy. It has to do with
inflation, and the news is bad. In fact, you'd have to reach back to
the Jimmy Carter years to find a rate of inflation any higher than
that announced today, a full 1.2 percent for last month.”
    Yet, when prices quickly retreated in
November, NBC News chose not to report it. According to LexisNexis,
not one single word of the November CPI has been uttered during NBC
News broadcasts through December 18.
    The same can be said of the morning and evening news
programs of ABC, which were all curiously absent any reference to
this report. Yet, after the September numbers were released, the
October 16 installment of “Good Morning America” addressed the data
as one of a “growing list of problems eroding the president's public
support and political clout.” In fact, correspondent Geoff Morrell
mentioned it in almost the same breath as the CIA leak scandal:
 “President Bush returns from Camp David this afternoon, no
doubt hoping this week is better than last, when his problems
mounted, day by day. On Friday, Deputy Chief of Staff, Karl Rove,
testified yet again before the grand jury, investigating the CIA
leak. That same day, soaring gas prices drove inflation to its
highest monthly rate in 25 years.”
    Though America’s print media gave
significantly more focus and prominence to the bad inflation news in
October, at least they reported last week’s data. Yet, the headlines
and article placements give one tremendous insight as to the
disparate way the newspapers covered these stories. In October, the
business section headline for The New York Times was “Inflation
Jumped 1.2% in September to a 25-Year High.” The Washington Post was
even more impressed by this report, making it front-page
news bearing the title “Inflation in Sept. Highest Since ’80.”
    Two months later when the November CPI plummeted by the
greatest amount in 56 years, The New York Times’
headline simply read “Price Index Shows Big November Drop.” The
Washington Post was more stoic. Its “Consumer Prices Down Sharply
With Energy Costs”
article was curiously placed inside the business section on page
D3 as compared to the front page of the main section in October.
    The text of last week’s articles on this mammoth
decline in consumer prices not only appeared under whelmed by this
report, but also tried to make disinflationary statistics appear
inflationary. The Times accomplished this by quickly moving in the
direction of another piece of economic data released on the same
day:
“The sharp drop in gasoline prices last month brought down the price
index, the government said. Brushing that aside, Wall Street's
forecasters focused instead on the core inflation rate, which
excludes food and energy. That rose.
“So did industrial production, another statistic released yesterday,
suggesting to some economists that inflationary shortages might
develop.”
    Yet, the Times failed to mention that such
a concern didn’t exhibit itself in any recognizable fashion on Wall
Street. The stock market was relatively unmoved. The yield on the
10-year Treasury note was 4.43 percent on Thursday before these
reports were released. At the close, the yield was about 4.47, and
finished the week at roughly 4.45 percent. If investors really saw
these reports as being inflationary, there would have been a more
pronounced run-up in interest rates.
    The Post also spun the good news. After reporting the
headline number, Nell Henderson downshifted into gloom gear:
“However, consumers paid more last month for many other items,
including housing, clothing, medical care, hotel rooms, food,
electricity and natural gas. Those price increases helped push the
‘core’ CPI, which excludes energy and food costs, up 0.2 percent.”
Henderson neglected to mention that this rise was exactly what Wall
Street analysts and economists had forecast.
    America has been in a disinflationary cycle since the
early ’80s, with a few very short-lived spurts of above-trend price
rises since. Yet, the thought of a return to ’70s-style stagflation
strikes fear into all who lived through it. As a result, the press
have a solemn responsibility to report these figures to the public
in as impartial and factual a manner as possible…or is that asking
too much?
Noel Sheppard is an economist, business owner, and contributing
writer to the Free Market Project. He is also contributing editor
for the Media Research Center’s NewsBusters.org. Noel welcomes
feedback at
[email protected].
|