JIM LEHRER: Now, inflation.
The government's latest figures show prices made the biggest jump in any 12-month period since October 2008. But when gas and food are added, inflation feels even higher to most Americans. And that presents a dilemma for the Federal Reserve.
NewsHour economics correspondent Paul Solman reports as part of his ongoing coverage on making sense of financial news.
ROBERTO RIGOBON, MIT Sloan School of Management: We collect food, beverages. We collect health products, home products.
PAUL SOLMAN: With an MIT colleague, economist Roberto Rigobon tracks millions of prices online, worldwide...
ROBERTO RIGOBON: Real estate, furniture, clothing.
PAUL SOLMAN: ... and thus tracks inflation, how fast prices are rising, including here in the U.S.
ROBERTO RIGOBON: If you take the last three, four months, we're detecting an inflation rate of about 5 percent, close to 5 percent.
PAUL SOLMAN: Faithful NewsHour viewers may recall how, by contrast, the government monitors inflation, every month, 400 part-timers, like California's Frank Dubich, gathering data one price at a time.
FRANK DUBICH, CPI data collector: And how much are those today?
MAN: These are $69.99.
PAUL SOLMAN: Hotel rooms.
WOMAN: Would be $149.
FRANK DUBICH: One hundred and forty-nine even?
PAUL SOLMAN: What are you going to be pricing here?
FRANK DUBICH: Navel oranges, tangelos.
PAUL SOLMAN: This is how the Bureau of Labor Statistics, the BLS, keeps tabs on 80,000 prices. It, too, is reporting an annual inflation rate of about 5 percent; a trend Rigobon's online tracking method had picked up months earlier.
ROBERTO RIGOBON: Since December, for example, we started detecting more inflation. And then, you know, the BLS sees the inflation rate from very little, starts to go up and up, and now is much bigger. You see?
PAUL SOLMAN: We see, as do many Americans these days in their actual lives.
At a Connecticut senior center we have visited before, bingo is still a dollar a card. But life's staples are soaring, says Catherine DeMartino.
CATHERINE DEMARTINO: They have got to do something about it...
PAUL SOLMAN: About what?
CATHERINE DEMARTINO: ... because everything is out of proportion.
PAUL SOLMAN: The main complaint here was about gas prices.
MARGE REILLY: I have cut down my driving a great deal. I can't even seen my -- go to Stoney Creek to see my family, because that's -- it uses up too much gas.
MAMIE GAGLIARDI: My children live in Wallingford and in Clinton. I can't go visit them. I can't afford it. I have to take something away from my table to pay for the gas.
PAUL SOLMAN: Tell me your age.
PHYLLIS MAZZIOTTI: I'm 97.
PAUL SOLMAN: You're 97?
PHYLLIS MAZZIOTTI: Yes.
PAUL SOLMAN: Phyllis Mazziotti also worried about the price of gas.
PHYLLIS MAZZIOTTI: It's going up to $5.
PAUL SOLMAN: Why do you think it would go to $5? I mean, why -- there's plenty of...
PHYLLIS MAZZIOTTI: Well, what is it now, $4.19, $4.20?
PAUL SOLMAN: Yes. Yes. You can't possibly be driving at 97, right?
PHYLLIS MAZZIOTTI: I drive from my house to here.
PAUL SOLMAN: You drive?
PHYLLIS MAZZIOTTI: Yes.
PAUL SOLMAN: Leaving the dangers of on-the-road elderly for another day, there may be a very different problem with what we have just showed you.
Gas is a volatile commodity and the price of oil at the barrelhead has actually been coming down the past week or so. So, maybe inflation will be here today, gone tomorrow.
No, says MIT's Rigobon. Energy affects the price of everything in the economy, but it takes a long time to do so.
ROBERTO RIGOBON: Oil prices go up. Then the gas prices at the pump go up. Then, transportation companies, their costs go up. They have to decide to increase their prices. Then, when those guys increase their prices, the retailer has a higher price of bread at the store. And then they have to decide when to pass that to the consumer. That doesn't happen in a week. I mean, this takes a long time to happen.
PAUL SOLMAN: A year-and-a-half, according to researchers. So then why the recent run-up in prices?
ROBERTO RIGOBON: Our demand has increased tremendously. For example, we're almost at the same level of demand that we had before the bubble. OK? And this is 2007, before the bubble went -- busted. Our consumption per capita is roughly the same of what we had at that time.
PAUL SOLMAN: But there is an alternative explanation of inflation. The Federal Reserve, through its policy of so-called quantitative easing, has been pumping dollars into the economy to keep us from falling back into recession.
But that could be devaluing the currency, creating more dollars, thus making them worth less, thus raising prices -- inflation. The government has adjusted the way inflation is calculated over the years, for supposedly technical reasons.
But economist John Williams thinks the real reason was to report a lower inflation rate and make the economy look healthier than it is. On his website, ShadowStats.com, Williams' readjusted inflation rate is now over 10 percent. And he's worried, as he long has been, about hyperinflation.
JOHN WILLIAMS, ShadowStats.com: The dollar, as we know it, is going to become worthless in the years ahead.
PAUL SOLMAN: But even if you don't share Williams' hyper-anxiety or his sky-high estimate of current inflation, and stick with the MIT estimate of 5 percent, it's useful to put that in context.
FORMER PRESIDENT OF THE UNITED STATES RICHARD NIXON: Inflation robs every American, every one of you.
PAUL SOLMAN: That's President Nixon in 1971, when inflation was only 4 percent.
RICHARD NIXON: The time has come for decisive action, action that will break the vicious circle of spiraling prices and costs. I am today ordering a freeze on all prices and wages throughout the United States.
PAUL SOLMAN: Such controls are unimaginable today, but Nixon thought they were necessary at a 4 percent inflation rate.
Yale's Robert Shiller, famous for calling the housing crash.
ROBERT SHILLER, professor of economics, Yale University: Four percent inflation is significant, because that means, in something like 18 years, the price has doubled.
So, if you retired, and you had something that -- you know, a cash investment that didn't go up with inflation, you would be living on half the money, in real terms, in -- you know, in just 18 years. That matters a lot.
PAUL SOLMAN: Rigobon agrees.
ROBERTO RIGOBON: And, historically, the poor are the ones that suffer the most. The unemployed are the ones that suffer the most. I mean, unemployment insurance is rarely indexed to inflation. So, if you have a big inflation rate, you know, those earners will just have to lower their standards of living even further than what they have already lowered.
PAUL SOLMAN: Social Security is indexed to inflation, but it adjusts a year after the data are collected.
And, in Connecticut, our seniors were certainly feeling pinched right now.
What are you cutting back on?
WOMAN: I'm cutting back on everything. I don't buy nothing. I don't buy nothing.
MAMIE GAGLIARDI: You try and make a dish that goes a longer way, where you can eat two meals out of, instead of one meal.
PAUL SOLMAN: Lunch at a suggested donation of $2 is an attraction for people hurt by rising food and energy prices, key components of what's aptly called headline inflation, the 4 to 5 percent you have been hearing in this story.
So-called core inflation, however, because it excludes food and energy, is running at just 2 percent, which is why economists from conservative Greg Mankiw to liberal Paul Krugman agree with the Fed when it says that low core inflation means it doesn't need to raise interest rates yet.
Food and energy prices reflect global markets, global speculation. The Fed thinks they won't respond to U.S. monetary policy, so they shouldn't drive it.
Like many economists, however, Bob Shiller is concerned about inflation, both headline and core.
ROBERT SHILLER: It creeps up on you. And once it starts getting out of control, I think it affects our confidence. That's what it's doing now. It's just creeping up. And the job of the Fed is to go in and take care of that problem.
PAUL SOLMAN: But the Fed's not doing that.
ROBERT SHILLER: Well, if they stamp on the brakes to kill inflation, they will push us back into a recession.
ROBERTO RIGOBON: If I were in the Central Bank, my first objective will be to create conditions in such a way that I can provide jobs to, you know, 10 million people that are searching for a job.
PAUL SOLMAN: But if you're the Fed and you're allowing inflation to rise at 5 percent to 6 percent, you're taking quite a chance, no?
ROBERTO RIGOBON: Having low inflation and 10 percent unemployment is not -- is not politically and socially acceptable, so I think the Fed is doing the right thing.
PAUL SOLMAN: But the Fed is taking something of a chance: that inflation won't get out of hand.
Other Americans, meanwhile, are taking their own chances, trying to make do in a world of again-rising prices, which they hope they will be able to pay.