Don’t be fooled by the money illusion


Don’t be fooled by the money illusion

Commentary: Many economic numbers don’t account for inflation

By Irwin Kellner

MarketWatch

March 20, 2012

PORT WASHINGTON, N.Y. (MarketWatch) — Rising prices are making some statistics look better than they really are.

Now that inflation is beginning to pick up, it is vital to distinguish between what is real and what is just an illusion caused by inflation. If one does not, one might very well come away with the impression that the economy is shifting into higher gear when, in fact, it is not.

Take retail sales, for example. On the surface they are encouraging, since February’s sales gain was the most in five months. And since retail sales are one-half of consumers’ spending, which in turn makes up two-thirds of overall economic activity, one might be tempted to conclude that the worst is over.

One would be wrong. First of all, these are dollar figures, adjusted for the time of year but not for inflation. Second, most of the rise reflected a 6% surge in gasoline prices.

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