There is a line of argument that I hear all the time from conservatives. It states that inflation is totally out of control but that it isn’t taken into account with regular measures because they weed out volatile items. In other words, “Have you seen what is happening to the price of milk?!” This is nonsense. There are two kinds of inflation measures: headline and core. Headline inflation is the inflation of all products—including things like food and energy that are highly variable. Core inflation is the inflation without these highly variable products. The government estimates both kinds of inflation.

Here is a little graph that I put together with the help of the Federal Reserve Bank of St. Louis data tool. The red line is the headline inflation and the blue line is the core inflation. What it shows is that there isn’t much of an effect. It also shows why we use core inflation: headline inflation has a lot of ups and downs that economic policy should not respond to. Note also that since the financial crisis, the headline inflation was generally less than the core inflation.

This belief among conservatives that inflation is terrible and that the government is hiding it from us is part of a larger belief that monetary policy at the Federal Reserve is destroying our economy. These people have been screaming for years that all of our efforts to stimulate the economy are going to lead to inflation. That hasn’t happened. So all they can do is claim that we really do have high inflation, it is just that the government is lying to us. (Note: other non-government estimates of inflation agree with the government numbers.)

Recently, Bernanke announced that he will start cutting back quantitative easing (QE) as soon as we get to 7% unemployment and that he thinks the unemployment rate target should be the unreasonably high 5.5%-6%. Since then, bond prices have risen modestly. This should not happen. In fact, it hasn’t happened the last two times that QE programs were ended. According to Elliott Orsillo at Season Investments, this is just an irrational blip in the market. Bond prices are not on the rise because the economy is not on the rise (not much, anyway).

But back on the main point: food prices are not increasing. In a blog post this morning, Paul Krugman provided two graphs that show a time series of prices for bread and milk since the financial crisis. Bread prices are basically flat whereas milk is down significantly. The problem is that people focus on every up tick in milk and gas prices. These just don’t represent a large part of one’s expenditures. What’s more, we note increases much more than decreases. But if you are looking for a reason to justify thinking that the Federal Reserve is destroying the American economy, they provide a plausible (but incorrect) explanation.