Almost lost among the conjecture of who will succeed Ben Bernanke as Federal Reserve chairman is one central debate about fed policy: Is it time for Fed policy to encourage higher prices?
In Monday's Wall Street Journal, that debate was the center of a "Heard on the Street" column titled "Targeting the Fed's Pesky Inflation Problem." The Federal Reserve Board may decide to scale back its bond purchases because inflation is too low.
Basically, the fed has a target rate of inflation of 2 percent per year. By its standards, the U.S. inflation rate is below that.
But, as we have pointed out before, the fed's calculation of the inflation rate excludes food and energy prices. That is like saying the world's lions are on a strict diet, if you don't include red meat.
The "Heard on the Street" column appeared the same day that AAA announced that for the first time in history, the average price of a gallon of gasoline in the United States averaged more than $3 for the 1,000th consecutive day. According to a USA Today story, AAA said that on Monday the average price was $3.52 per gallon for regular.
Now, that may sound like a bargain to those of us living in Hawaii, for we usually average 85 cents to $1 a gallon more than those lucky Mainlanders.
The point is that the price of gasoline is out of control and anyone who doesn't include it in inflation calculations is whistling past the graveyard.
In Hawaii, we are doubly stressed by energy prices because all of our goods arrive on ships powered by oil products. When energy prices go up, so does the cost of every consumable in the islands.
Now, couple that with stories earlier this summer that said beef prices were at an all-time high. That was blamed on drought, high feed prices and late freezes.
The point is that the Federal Reserve cannot say it is measuring inflation accurately if it doesn't include energy and food prices.
Go to the grocery store, visit a gas pump. Two percent inflation? Get real.
* Editorials reflect the opinion of the publisher.