JIM LEHRER: Now, tracking inflation and its connection to politics. The government reported today that prices rose again in January, as measured by the consumer price index. It was a higher increase than economists had expected.
Our economics correspondent, Paul Solman, tagged along to see how the government calculates those numbers. And here is his report.
PAUL SOLMAN, NewsHour Economics Correspondent: A rendezvous in Anaheim, Calif., with one of some 400 part-time data collectors of the CPI, the consumer price index, our most popular gauge of inflation.
FRANK DUBICH, CPI Data Collector: How are you, sir?
PAUL SOLMAN: Very nice to meet you.
Sixty-one-year-old Frank Dubich retired after 20 years with the port of L.A. For the past few, he’s been a government scout of sorts, tracking the CPI.
And this is your government-issued computer right here?
FRANK DUBICH: That’s correct. That’s called a tablet computer. And what we do is, when we collect the price information, I’ll go home, and then send it wireless to Washington, D.C. Then I have to put a password in. I can’t show it to you.
PAUL SOLMAN: You can’t show me your password?
FRANK DUBICH: No, no.
PAUL SOLMAN: No, that wouldn’t make sense.
All sources for the CPI, some 25,000 nationwide, are strictly confidential, as well, so every stop on our tour must remain titillatingly anonymous, no matter how mundane. Suffice it to say this one sells pucks.
FRANK DUBICH: Now, I’m looking for the UPC number 802…
PAUL SOLMAN: To say Frank gets down to specifics is gross understatement. And while he tracks just a few of the 80,000 items that make up the CPI, there seem to be that many varieties of skating shin guards alone, not to mention hockey gloves.
FRANK DUBICH: And how much are those today?
STORE WORKER: These are $69.99.
FRANK DUBICH: OK, they were on sale in January?
STORE WORKER: They were on sale back in January for $50 bucks.
PAUL SOLMAN: Though these gloves were on sale last month, the price rise is duly recorded. Short-run sales tend to average out over time. But the glove price rise is consistent with the latest trend: Long-run inflation has been on the rise.
RICHARD HOLDEN, Bureau of Labor Statistics: … 4 percent over the past year.
PAUL SOLMAN: Richard Holden of the BLS, the Bureau of Labor Statistics, which runs the CPI operation and issues the monthly number.
RICHARD HOLDEN: And then you’ll also see a different index for all items, less energy and food. And that’s less, because it takes into account the volatility of those two particular things. For the past year, I believe it’s 2.7 percent.
PAUL SOLMAN: When you subtract energy and food price swings, that is, and get down to the more stable inflation rate.
RICHARD HOLDEN: That’s what people refer to as core inflation or underlying inflation.
CPI often used as a political tool
PAUL SOLMAN: But using either version of the index, "core" or "overall," the CPI is rising faster than it has in many years and becoming an issue, if still a small one, in the presidential campaign.
SEN. HILLARY CLINTON (D), New York: Wages are flat, but health care costs are up. Gas and energy costs are up. Education costs are up. So people are running as hard as they can, but they're going backwards.
SEN. BARACK OBAMA (D), Illinois: And one last point I want to make about the economy. I won't just raise the minimum wage every 10 years. I want to raise it every year to keep pace with inflation, because if you work in America, you should not be poor.
PAUL SOLMAN: Now, inflation has been a political concern in campaigns as far back as we've had them on TV. This Republican ad in 1952 was among the first political ads ever broadcast.
ACTRESS: You know what things cost today. High prices are just driving me crazy.
DWIGHT D. EISENHOWER, former president of the United States: Yes, my mammy gets after me about the high cost of living.
PAUL SOLMAN: Eisenhower was attacking the rise in the CPI, which had zoomed after the war's price controls. It was only about 2 percent overall by 1952, however, well below today's 4 percent rise.
POLITICAL ADVERTISEMENT ANNOUNCER: How's that again, General?
PAUL SOLMAN: But four years later, the Democratic vice presidential candidate used Ike's TV ads and subsequent even milder inflation against Ike.
DWIGHT D. EISENHOWER: Yes, it's time for a change.FORMER SEN. C. ESTES KEFAUVER (D), Tennessee: This is Estes Kefauver. The general's promise to bring down prices was another broken promise. Since the Republicans took office, the cost of living has reached its highest point in history.
Most prices currently stable
PAUL SOLMAN: Well, no surprise there. Prices almost always go up. At the moment, they're also at their highest point in history, and actually rising a lot faster than in 1956.
But even with today's inflation, we learned on our tour, most of the items that make up the CPI hold steady month-to-month. Hotel manager Marie Theodore.
MARIE THEODORE, Hotel Manager: King weekday would be $149.
FRANK DUBICH: $149 even?
MARIE THEODORE: Yes.
FRANK DUBICH: The weekend?
MARIE THEODORE: And the weekend is running $129.
PAUL SOLMAN: Exactly the prices Frank got from Marie last month. What about prices here over a longer time horizon?
MARIE THEODORE: About year over year from last year in January, 4 percent. And our operational cost has gone up 3 percent to 5 percent.
PAUL SOLMAN: Now, realize inflation around 4 percent means your bank account is losing money unless the interest rate is higher than 4 percent. Treasury bills are now paying half that. And, historically, inflation a lot lower had people, and therefore politicians, worried.
POLITICAL ADVERTISEMENT ANNOUNCER: This is the Sills family. Recently, John F. Kennedy visited the Sills.
JOHN F. KENNEDY, former president of the United States: Mr. and Mrs. Sills are facing one of the great problems that all American families are now facing.
PAUL SOLMAN: Back in 1960, the Democrats were complaining about inflation when the CPI had risen, on average, barely 2 percent in Ike's second term.
SILLS FAMILY MEMBER: Our rent has gone up, our food, our cleaning of our clothing, buying of the clothing, our gas and electric and our telephone bills have gone up.
'Stagflation' rare but disastrous
PAUL SOLMAN: But they weren't going up much and still didn't in the Kennedy years, only about 1 percent a year. In fact, inflation didn't pick up again until President Nixon's first term.
But when it next got back above today's 4 percent, it was considered so high Nixon imposed wartime-like wage and price controls in 1971.
For CPI respondents like auto service manager Carlos Becerra in Placentia, California, however, the worry wasn't inflation, we found. It was recession. Business here is stagnant.
CARLOS BECERRA, auto service manager: We're already seeing a slowdown. We really have. You know, our numbers from last year, January to this year January, they dropped about 9 percent.
PAUL SOLMAN: Now, recession plus inflation equals stagflation, the two at once. This was the economic malady of the 1970s under Gerald Ford and Jimmy Carter, harped on by Ronald Reagan in his 1980 campaign ads.
RONALD REAGAN, former president of the United States: Once upon a time, four long years ago, most Americans could dream of owning a home. But Jimmy Carter's runaway inflation, with record-high interest rates and a lack of mortgage money, has slammed the door on that dream. I pledge to all Americans that we'll get inflation under control and keep it under control.
PAUL SOLMAN: In the year of this ad, inflation was running over 13 percent.
It was during this period that Federal Reserve Chairman Paul Volcker raised interest rates sky-high to squash inflation. By 1984, President Reagan's re-election ads were boastful.
REAGAN ADVERTISEMENT ANNOUNCER: This afternoon, 6,500 young men and women will be married. And with inflation at less than half of what it was just four years ago, they can look forward with confidence to the future. It's morning again in America.
Inflation always a concern for Fed
PAUL SOLMAN: The CPI rose 4.3 percent that year, just about what it's running now. So is it morning in America these days or closer to dusk?
And while the Fed is more concerned about recession than inflation at the moment, after every reduction it makes in the interest rate to keep the economy from contracting it mentions that it's still worried about inflation.
PAUL SOLMAN: What are you going to be pricing here?
FRANK DUBICH: Naval oranges.
PAUL SOLMAN: Our last stop, a farm stand in Anaheim managed by Josh Crone.
JOSH CRONE, farm stand manager: Everybody knows prices are out of control, whether it's tires, whether it's vehicles, anything that you need to make your business go costs more.
PAUL SOLMAN: Crone has a degree in political science from Berkeley.
JOSH CRONE: We used to spend $30 for a case of roll bags. We're spending in the $50 range now. Plastic is out of control. That influences the price of Coca-Cola. But I think that the truth out there is that prices have actually gone up quite a bit.
PAUL SOLMAN: And though Crone says his profit margins have shrunk, as he's tried to absorb these cost increases without raising his prices, food has been an especially sour component of the CPI this year. Again, Richard Holden of the BLS.
RICHARD HOLDEN: For example, dairy products have actually gone up 13 percent in the last year. Fruits and vegetables have gone up 5.9 percent, and bread has actually gone up 10.5 percent.
PAUL SOLMAN: All of which suggests that we could be hearing a lot more about the CPI as the 2008 campaign heats up.