With or without strawberries the basket might still not matter
Sir Wolfgang Munchau in “Why they take the strawberries out of the basket”, June 19, states that “the purpose of monetary policy . . . is to maintain the purchasing power of fiat money” and of course we all know he is wrong, since it is much more than that.
But when he then enters his very interesting discussion on core and headline inflation, developed to take care on timing differences and avoid knee jerk reactions, either for technical or political reasons (perhaps just another difference in timing) he also seems to ignore that the basket is just a bureaucratic product, designed to follow the cost of living for an average consumer, and as such, it might still, with or without strawberries, not be able to assure us that the fiat money is not loosing its purchase power.
When one observes how in a land with a per capita income of 42.000 US dollar per year so relative few can afford having a maid, much less a local maid, we might have the right of viewing with some more suspicion the real purchasing power of current fiat money.
Sent to FT, June 19, 2006
But when he then enters his very interesting discussion on core and headline inflation, developed to take care on timing differences and avoid knee jerk reactions, either for technical or political reasons (perhaps just another difference in timing) he also seems to ignore that the basket is just a bureaucratic product, designed to follow the cost of living for an average consumer, and as such, it might still, with or without strawberries, not be able to assure us that the fiat money is not loosing its purchase power.
When one observes how in a land with a per capita income of 42.000 US dollar per year so relative few can afford having a maid, much less a local maid, we might have the right of viewing with some more suspicion the real purchasing power of current fiat money.
Sent to FT, June 19, 2006
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