CLAIM: Inflation much worse than CPI shows. “While the Fed may prefer to look at core inflation, the rest of us live in a world where we buy food and consume energy. And for those in the lower part of the income spectrum, the rising cost of food and energy is disproportionately high.” Well, I just bought the turkey and 2 legs of lamb I’ll be cooking for Thanksgiving, and the total cost was about 30 bucks higher than last year. And I paid a buck more a bottle for the same wine I bought last year, too.

UPDATE: Reader James Hicks writes:

Anyone who shops knows that prices are going up and feels it already. The WSJ quoted an analyst Fri. as estimated commodity expense inflation running from 2% at Heinz to 12.9% at Sara Lee. The CPI relies disproportionately on housing, which distorts the inflation picture. Housing is not liquid so, despite the collapse in prices, my housing costs are marginally greater as added insurance and taxes are added to the fixed payment. Utility and cable costs are greater. Tuition for college for my children has increased. Food prices are jumping alarmingly for staples. Because the CPI is flat we will not get a COLA this year. Yes, if I cut the kids loose and walked away from my mortgage I could lower my housing costs and have a flat overall inflation rate. I am troubled by the moral hazard of people being forced into that by the Fed.

They seem to merely add the collapsed housing prices to commodity prices and see no inflation. Look at it this way: when Colorado housing prices collapsed (I believe in the 90’s) to the point you could buy a condo for $5K, the Fed’s methodology would have led you to believe that if food prices spiked 20% Colorado would have been in a deflationary environment and increasing food and energy costs would prevent further deflation. They would have been wrong. It would have created more defaults, devastated those on fixed incomes and slowed the recovery.

Yes, unfortunately it’s hard to play the inflationary and deflationary sectors off against one another. Overall, though, it seems like what reader Matthew Hennessy said a while back: “Inflation in food prices is explained by deleveraging: stuff you NEED to have that’s paid for in cash goes UP in price (inflation), while stuff you WANT to have that’s paid for with borrowed money goes DOWN in price (deflation).”