Inflation measurements are deceptive

Inflation is one of the terms feared by the government and big banks. Knowing that the public reacts to inflation by voting out politicians and buying precious metals, the bankers’ bane, and shying away from inflation indexed bonds, both do anything to keep us from realizing how markedly inflation has been eating away at our earnings and savings over the decades.

Whenever inflation becomes too evident or rises too quickly, the U.S. Bureau of Labor Statistics, in charge of releasing the inflation rate (CPI), changes the way it calculates inflation by modifying its magic equations. Currently the newest proposed trick is called the Chained Consumer Price Index which formulates inflation by upside-down and illogical concepts known as “hedonic quality adjustment” and “product substitution weighing.” One example is if the price of steak rises, then people will switch to hamburger and so the real cost of living has not risen. Using that logic, if food in general goes up too high and we are forced into eating grass, inflation has not affected us at all.

Any of the previously used formulas before 2008 show that the actual inflation percentage is now in the mid-double digits, while the current formula shows inflation to be in the low single digits. But the proposed Chained CPI would indicate a step further removed from reality — an even lower percent of inflation.

If the White House and Congress permits this new deceptive method of determining inflation, any CPI-dependent transactions like TIPs bonds and Social Security payments will not only severely lag behind the real inflation, but Social Security payments will likely be reduced.

Any trip to the grocery store or gas station will show you the real rate of inflation, and it isn’t down.

David Stockman

Lake Zurich