Well, here’s a blast from the past.

When the CPI numbers came out this morning, they showed inflation had slowed again to roughly 4% year-over-year. The data prompted even more pundits to forecast the Fed will announce a pause in interest rate hikes tomorrow.

I was pressed on a podcast last night from Melbourne about what I thought the Fed would do. I answered that it doesn’t really matter what I think because they’re going to do. It stands to reason, I can only share my opinion.

The Fed should raise another quarter point to show they’re resolute in fighting inflation, even if it’s only to get back to their arbitrary target of 2%. But more than that they should keep rates high for a long enough period to get people in the economy accustomed to the higher rates and adjust their own spending accordingly. Including, when they buy houses, pay tuition or invest in new businesses.

The Fed’s mandate is to protect the value of the dollar. Yet, the over/under on what the Fed is going to do seems to favor a pause.

The whole discussion put me in mind of working as publisher, editor and writing assistant to Dr. Kurt Richebacher, whom many readers will recognize.

One thing he was insistent on doing was parsing the CPI numbers every time they were published.

The reason, he was incensed by the Bureau of Labor Statistics used of “hedonic price indexing” which allows them to pick and choose which components go into the CPI.

The term “hedonic” has Greek roots. It means “pleasure”. The components of the CPI are “hedonic” by trying to judge what the “pleasure” – or in economic terms “utility” the buyer obtains for the “quality of the attributes of a specific good.”

Yeah, it’s confusing. But it’s what allows news headlines of 4% inflation to be printed. That 4% figure is the “core” price increase – conveniently, leaving out food and energy, whose prices are more volatile. Hedonic price indexing is used in both the U.S. and the U.K.

I’ve been parsing through Dr. Richebacher’s letters of late while doing research for a new project.

I’ll have more to say on “hedonic” price indexing in future missives. But for now, I’ll share this tweet from Charlie Bilello, from from Creative Planning Investor in response to today’s numbers:

Even if the Fed pauses, these numbers will still matter to anyone who wants to buy gas, wear clothes, or eat food.

So it goes,

Addison Wiggin,
The Wiggin Sessions

P.S. One day, while working with Dr. Richebacher out of his apartment in Cannes, we decided to head down to the beach for lunch. Kurt donned a white suit with matching fedora. It was a beautiful sunny day, light breeze coming ashore from the Mediterranean.

We lunched at a famous bistro who’d placed tables on the sand with awnings overhead. Of course, the maitre de knew the good doctor personally as did our waiter.

Dr. Richebacher was, I suppose is still, remembered as a curmudgeonly gentleman of the gloom and doom persuasion.

On such a beautiful day, I couldn’t help but wonder… and so I asked.

“How is it that you only see the dark and gloomy side of things?”

“Addison,” Kurt answered in his gruff franco-german accent, “I want to know what could go wrong. Why would I write about things that are already working? No one would read what I write or care about my ideas.”

Kurt Richebacher was 83 at the time and passed away 6 months later. He willed me his library, for which I’m grateful. And feel lucky to have spent the time with him that I did.