Inflation Actually Near 10% Using Older Measure

[The Northerner]

After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.

Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.

Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products, improvements in quality (i.e. iPad 2 costing the same as original iPad) and other things. Backing out more methods implemented in 1990 by the BLS still puts inflation at a 5.5 percent rate and getting worse, according to the calculations by the newsletter’s web site, Shadowstats.com.

“Near-term circumstances generally have continued to deteriorate,” said John Williams, creator of the site, in a new note out on Tuesday. “Though not yet commonly recognized, there is both an intensifying double-dip recession and a rapidly escalating inflation problem. Until such time as financial-market expectations catch up with underlying reality, reporting generally will continue to show higher-than-expected inflation and weaker-than-expected economic results in the month and months ahead.”

Read more: http://www.cnbc.com/id/42551209

[Exilednight]

1. What we really need to recalculate is how we measure economic

growth. We should include benchmarks like concentration of wealth and levels of median income.

[Newsjock]

2. Where were these CNBC stories when Dumbya was presidenting?

Exactly.

[femrap]

3. Anyone who has gone to

a grocery store or gas station knows that the Rich/Corporations are fooking us.

[Odin2005]

4. Anyone who buys groceries could have told you that.

[DJ13]

5. Im sure glad the SSA didnt think recipients were seeing any inflation the last 2 years

Any bets those bastards will try to give almost no COLA for next year (or the years after)....?

[n2doc]

7. They have already said medicare premium increases will negate any COLA for next year n/t

[pinqy]

6. Williams is making it up

I've looked at what he does (though of course he doesn't reveal his actual methodology) and it looks like he's just adding an arbitrary 5% on top of the all items CPI-U. He ignores that pretty much everyone agrees that inflation was overstated under the old methodology, that housing prices were muddled by the investment attributes of real estate, and that changes in buying habits weren't properly accounted for (personal computers weren't part of the basket until at least a decade after they became common).

And quality change is for decline in quality or quantity as well...if tuna goes from $1 for 6 oz to $1 for 5 oz, that's calculated as a price increase. If a shirt goes from 95% cotton to 90% cotton for the same price, that's also a price increase.

No one can duplicate shadowstats' numbers, he has no access to the microdata so he can't really be recalculating using the old methodology, and when BLS did a comparison of old and new indexes, the differences were slight, with the new methods giving greater inflation for some items as well.

http://www.bls.gov/cpi/cpiqa.htm">Common Misconceptions about the CPI (includes link to in depth article refuting Williams and others).

http://www.bls.gov/opub/mlr/1999/06/art4full.pdf">Comparison of old and new methods (shows 0.45% annulized difference)

[Taitertots]

8. Inflation is higher when you use antiquated, flawed price indexes

Paul Volcker was not in the middle of a huge recession. Jacking up the interest rate would destroy the recovery.

The biggest driver of inflation is people's beliefs about inflation. The inflationary chicken littles are trying to screw over Obama by keeping monetary policy overly tight, suffocating the economy with inflationary paranoia. Ever wonder why no one gave a shit about inflation until Obama was in office.