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Lightening Round: All things inflation

Chris Farrell Dec 16, 2010

Lightening Round: All things inflation

Chris Farrell Dec 16, 2010


JEREMY HOBSON: Are you worried about inflation? Well, according to yesterday’s government report on inflation, there’s not much to fret about right now. Core consumer prices rose just 1 tenth of 1 percent last month. And remember the Fed’s ideal inflation rate is 2 percent a year.

Well, we’re going to do a little lightning round on all things inflation right now with Marketplace’s Economics Correspondent Chris Farrell. Hi Chris.


HOBSON: Hey there, so here we go. Why do we care about inflation so much?

FARRELL: So remember, inflation is a change in the overall price level. And the reason why borrowers, lenders, investors, and savers care about inflation is that it means how much will my dollar be worth a year from now, two years from now, three years from now.

HOBSON: And one of the key measures, Chris, of inflation is the Consumer Price Index. We got that yesterday, what is it and how is it calculated?

FARRELL: So remember, in our economy, prices are always changing. In the latest consumer price number — new car prices were down, airfares were up. So the statisticians and the Bureau of Labor Statistics they collect all kinds of prices from 87 urban areas around the country, and they make all kinds of adjustments, and they get rents in there too, and they come up with a price index.

HOBSON: And why do economists often look at the Consumer Price Index minus food and energy.

FARRELL: What else is there to life but food and energy. What they’re trying to do is get a sense of is Proctor and Gamble passing on higher costs onto consumers. They’re trying to really get a gauge on what’s happened to corporate America when they pass on their prices to consumers.

HOBSON: OK now the other major gauge is the Producer Price Index. What’s the difference with that one?

FARRELL: OK so the Consume Price Index is consumers, that’s you and me. Producer Price Index is the price inflation gauge for producers. You know what is the cost of their inputs as they try and make these goods and services. So it’s extremely important. It tells us what’s going on with corporate America, and whether or not they can increase their prices as you go along the food chain.

HOBSON: OK last lightening round question here Chris. The inflation rate has been quite low here in the U.S. but China revealed this week that it’s inflation rate hit 5 percent last month. Should we care about that?

FARRELL: Absolutely. China doesn’t want a high inflation rate. It’s going to fight a high inflation rate and that means less trade for the U.S.

HOBSON: Of course trade is what it’s all about in getting us out of this recession. Marketplace Economics correspondent Chris Farrell, thank so much for playing.

FARRELL: Thanks a lot.

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