If Inflation Falls in the Forest... If we listened to the media, no one would have heard the biggest price decline in 56 years.
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:
“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?