Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)

Email this Article

Send with mail | ahoo instead.
Required Needs to be a valid email
Required Needs to be a valid email
Steak, Hamburger and Dog Food: How the Government Lies About the Real Inflation Rate
http://mney.co/1J6VmXL
Required Please enter the correct value.
Twitter

Steak, Hamburger and Dog Food: How the Government Lies About the Real Inflation Rate

By David Zeiler, Associate Editor, Money Morning • @DavidGZeiler • March 8, 2012

View Comments

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

More experts are saying what most Americans have suspected for years - the real inflation rate is much higher than the government is willing to admit.

Officially, the U.S. Bureau of Labor Statistics (BLS) says the inflation rate, or Consumer Price Index (CPI), for 2011 was 3%.

But a report issued last week by the non-profit group American Institute for Economic Research (AIER) says the U.S. inflation rate for 2011 is far higher - 8%.

AIER used criteria based only on common daily expenditures to more accurately reflect how inflation affects consumers. Their index excluded less-frequently purchased items, like automobiles.

Economic consultant John Williams, an outspoken critic of the government's economic statistics, contends things are even worse.

Using the government's old methodology from 1980 - before politicians started to monkey with the formula - he calculates the real inflation rate is north of 10%.

That's more than triple the government's figure.

Among the few in government who see this as a problem is Republican presidential candidate Rep. Ron Paul, R-TX.

"You know this argument that the prices are going up about 2%, nobody believes it," Paul bluntly told U.S. Federal Reserve Chairman Ben Bernanke during a hearing last week. "People on fixed incomes - they're really hurting, the middle class is really hurting because their inflation rate is very much higher than the government tries to tell them and that's why they lose trust in government."

Changes to the Real Inflation Rate

Over the years, the government has made a series of adjustments to how it calculates the CPI, ostensibly to make it more accurate.

However, critics like Williams say the inflation rate formula has been changed to serve political ends.

"Government data are biased in politically correct directions and increasingly have diverged from common experience and reality since the mid-1980s," Williams says on his Web site, Shadowstats.com.

Changes to the CPI began under the tenure of Fed Chairman Alan Greenspan, who set the stage in the early 1990s by publicly complaining about how the CPI overstated inflation.

By 1999, the CPI had incorporated the idea of "substitution."

Instead of simply measuring how quickly prices were rising, the CPI added consumers' reaction to those price changes to the formula.

Successful bargain hunting means inflation isn't hitting you as hard, the government said, ignoring the impact such adjustments have on a person's standard of living.

real inflation rate"The old system told you how much you had to increase your income in order to keep buying steak," Williams said. "The new system promised you hamburger, and then dog food, perhaps, after that."

Another adjustment, "hedonics," adds value to goods based on how much better they are than previous versions.

"Now we don't take the real prices of computer chips, for example, but their price deflated by capacity, so every Moore's Law doubling of chip capacity halves the price," explained Money Morning Global Investing Strategist Martin Hutchinson. "Of course, doubling chip capacity doesn't double the functionality, so the whole "hedonic' theory is rubbish."

Or, as Williams puts it: "When gasoline rises 10 cents per gallon because of a federally mandated gasoline additive, the increased gasoline cost does not contribute to inflation. Instead, the 10 cents is eliminated from the CPI because of the offsetting hedonic thrills the consumer gets from breathing cleaner air."

Why Government Lies About the Real Inflation Rate

The government has strong motives for masking the real inflation rate.

Here are at least three:

  • Political Gain: This should surprise no one given the self-serving attitude that permeates Washington. Elected leaders know positive economic news, such as inflation that's under control, sound good in campaign speeches and can make the difference in a close election. In non-election years, fudging numbers like the CPI serves to avoid public pressure to do something to fix it. Government statistics that show inflation is not a problem keeps the issue off the public radar, regardless of the reality.
  • Big Savings: Many government entitlements, most notably Social Security payments, are linked to the CPI. Lower official numbers mean lower payouts. The ploy has saved the debt-ridden U.S. government billions of dollars, but has taken money from the pockets of American citizens. Williams says Social Security payments would be twice as high each month if the CPI formula had never been changed. It's no wonder so many seniors struggle to make ends meet. And it could get worse. Last fall's debt super committee suggested basing Social Security increases on a variant of the CPI that would lower payments even more.
  • Keeping Interest Rates Low: Although not responsible for the CPI, the Fed prefers it stay as low as possible to obscure its own inflationary policies. Fed policies like quantitative easing and holding interest rates near zero should have pushed inflation much higher - but the CPI's mutant methodology made sure that didn't happen. If the CPI were reported accurately, the Fed would be forced to raise interest rates, which in turn would slow the economy and slam the stock markets. That's not a headache the Fed or the elected leaders in Washington want. And then there's the bonus of allowing inflation to devalue the dollar to help reduce the nation's $15 trillion debt burden.

Although the BLS Web site devotes an entire page to defending its methodology for calculating the inflation rate, Americans see the reality every time they go shopping or pay a bill.

But with the altered CPI serving Washington so well, even pointed criticism from such prominent figures as Rep. Paul is likely to fall on deaf ears.

"Every single day [the dollar] buys less the next day," Paul complained to Bernanke. "To me it's sort of like...a builder had a yardstick that changed its value every single day. I mean, just think of the kind of building we would have."

Related Articles and News:

  • Money Morning:
    Not Much of a Debate: Inflation is Part of the Plan
  • Money Morning:
    Jim Rogers: "The Fed is Lying to Us"
  • Money Morning:
    Profit From Inflation: These Six Stocks That Will Add Punch to Your Portfolio
  • Money Morning:
    Hidden Inflation: Why Prices Are Rising Faster Than You Think
  • WorldNetDaily:
    What's America's Real Inflation Rate?
  • ABC News:
    Gold, Silver and Inflation: Ron Paul Spars With Fed Chairman Ben Bernanke
  • Shadowstats.com:
    Alternate Inflation Charts
  • American Institute for Economic Research:
    The EPI Reflects Basic Economic Change
  • Bureau of Labor Statistics:
    Common Misconceptions about the Consumer Price Index: Questions and Answers
  • Daily Finance:
    Why Inflation's Higher Than It Looks

Join the conversation. Click here to jump to comments…

David ZeilerDavid Zeiler

About the Author

Browse David's articles | View David's research services

David Zeiler, Associate Editor forĀ Money MorningĀ at Money Map Press,Ā has been a journalist for more than 35 years, including 18 spent atĀ The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving atĀ Money MorningĀ in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple forĀ The SunĀ in the mid-1990s, and had an Apple blog onĀ The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

… Read full bio

Login
guest
guest
2 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
fallingman
fallingman
11 years ago

Good article. Thanks.

So, with 10 year interest rates at around 2%, that makes real rates somewhere around minus 8%.

But gold is in a bubble.

Right. Got it.

The truth is that an 8% rise a year in gold constitutes no change in its purchasing power relative to the clownbuck, so that percentage has to be backed out to calculate gold's real percentage gains or losses.

Once you do that, any talk of a "bubble" becomes even more absurd than it already is.

0
Reply
Gordan Finch
Gordan Finch
11 years ago

Inflation is a tool of Governments to create domestic consumption lower to take more revenue from those starved by austerity. The tool used is FUEL. The tax take on Fuel is stoking Hyperinflation ? if you bought it- IT came on a truck— and I defy anyone to name any made, used or manufactured material that does not.

Fuel duty – taxes are destroying everything and unless this is stopped and soon we will have a new war, designed –and I fear it may not be of words.

0
Reply
LIVE
Visit Money Morning Live


Latest News

January 19, 2023 • By Money Morning Stock Research Team

These Stocks Could Go To $0

January 9, 2023 • By Money Morning Stock Research Team

The Government Is Pouring $391 Billion Into These Stocks - Buy Now

December 27, 2022 • By Money Morning Staff Reports

6 IPOs in 2023 You Can’t Afford to Miss
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover This Is VWAP Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Warlock's World Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Vega Burst Trader Flashpoint Trader Darknet Hyper Momentum Trader Alpha Accelerators Weekly Profit Cycles

Ā© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz