Thursday, October 15, 2009

Inflation Cools Off? No Inflation to Begin With

CNN's headline of this morning's CPI release was "Inflation Cools Off". My question... what inflation? Take this anecdote of the "inflation" in the system. USA Today details:

Colorado will become the first state to reduce its minimum wage because of a falling cost of living.

The state Department of Labor and Employment ordered the wage down to $7.24 from $7.28. That's lower than the federal minimum wage of $7.25, so most minimum wage workers would lose only 3 cents an hour.

Colorado is one of 10 states where the minimum wage is tied to inflation. The indexing is thought to protect low-wage workers from having flat wages as the cost of living goes up.

But because Colorado's provision allows wage declines, the minimum wage will drop because of a falling consumer price index. It will be the first decrease in any state since the federal minimum wage law was passed in 1938.

Take the bottom left chart with a grain of salt as the three biggest components of CPI are Housing, Food and Beverage, and Transportation (i.e. the bottom three in the chart).

Source: CPI