For God’s sake, I knew this would happen as soon as the inflation numbers came out.  Some right wing noise machine jackass would claim there was no inflation because the core number was low, completely ignoring the issue of energy based inflation.  Well, someone has taken-up my challenge.  That person is none other than Larry “I just say what they tell me to say” Kudlow.  How anybody can sleep at night spewing the lies he does is completely beyond me.  However, somehow he does.  So, let’s look at his statements, shall we?
The following is from Larry’s website.  Go there only if you must.

There’s a lot of important economic news today but the biggest stat is the core CPI which came in below expectations at only 0.1% or 2.0% over the past 12 months.

An even better measure of inflation, is the so-called chained, or Boskin CPI, whose core reading was only 1.8% over the past 12 months.

This is exactly the reverse of what Richard Fisher and other yapping Fed presidents, with their irresponsible and misleading, alarmist, inflation rhetoric that has so upset the recent stock market.

These officials are actually missing a clear trend. Namely: that after the core CPI rose modestly in 2003 and the first half of 2004, over the past 11 months, that core inflation measure is actually declining, modestly, not rising to new highs.

First, Larry is right.  Core inflation is low and has been for awhile.  Congratulations Larry – you can read.  

The problem is there are several inflation measures.  Larry decides to find a number that makes the administration look good, ignoring other numbers issued in the same report that tell a more problematic reality.

Inflation reports have two figures: the core rate and inflation including food and energy.  Food and energy prices are far more volatile than other prices.  For example, food prices are related to harvests and weather patterns etc…  As a result, they are reported separately.  If there is a 1-month spike in these prices, the chances are they will go down the next month.  

However — for anyone that has been paying attention to the markets, Larry (don’t you always say you trust the market to do the right thing?  Then why the hell aren’t you looking at any of the energy charts?) you will notice a pattern in energy prices: they are increasing really fast.  Prices are in what is referred to as an uptrend.  These aren’t 4-5% increases, Larry.  These are really big price moves.  

Now, I have an idea, Larry.  Why don’t we find a substitute for oil that we can use instead – something cheaper.  I’m waiting Larry.  I’m still waiting Larry.  Can’t find something to use instead, Larry?  THAT’S BECAUSE THERE ARE NO SUBSTITUTES FOR OIL, LARRY.  DUH!!!!!!! – YOU JACKASS.  

Just to review basic business structure, Larry: it takes energy to – extract the raw materials, transport those materials to the manufacturing plant, convert the raw material into a product, ship the product to a wholesaler, store the product at the wholesaler, transport the product to a retailer, warehouse the product at the retailer, and transport the product from the retailer to the consumer’s home.  Do you notice a trend here, Larry?  Energy prices – much like Elvis – are everywhere.  There is no way to get around them.  

So, when energy prices increase to the tune of 40%+ in a year, the economy as a whole has a problem.  

This is the inflationary problem the Federal Reserve Presidents are talking about.  And it is a big problem, Larry.  Here is one example of the problem:  home hearing prices are increasing 40-90% this winter.  That’s just 1 story, Larry.  I have another idea: go the New York and Richmond Federal Reserve websites and look at their latest manufacturing survey.  Notice how the cost segment of those surveys is moving higher – really high, really quickly?  Can you say inflation?  I knew you could.  

Larry – you’re an idiot.  Please stop.  You have more than enough money to retire.  Retire.  Go into hiding and seclusion.  Play tennis.  Relax.  And fade from our memories.