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us inflation is 11.8 per cent ..

  1. 24,765 Posts.

    As measured by the Consumer Price Index or CPI, the Bureau of Labor Statistics places the rate of inflation at 4.3% and the core CPI at 2.1%. This is simply inaccurate. The fact that this figure is so out of touch with the reality on the ground begs several questions.

    First, why do government statisticians and economists still refer the core CPI? Effectively stripping out the food and energy components? Core CPI, no longer reverts back to the basic CPI range as it once did. This is due to the fact that rises in food and energy prices are no longer the one-time cyclical events that they may have been decades ago. Today, they are long-term secular events and even the Federal Reserve officials have pointed this out. This alone makes the use of the core CPI outmoded and possibly devious.

    Further, anyone familiar with the statistics behind CPI construction knows that since the 1980's statistical techniques have been used to understate the CPI and other government inflation statistics.

    The manipulation of the basket of goods within the CPI over the past two decades has generally had the effect of reducing inflation. For example, a number of years ago the cost of a home was removed from the basket and rents were substituted. The effect of this was to grossly understate the CPI for the last several years as housing prices have been booming. Further, even with the current decline in housing prices, rents remain much cheaper than house payments.

    Another technique to mask inflationary pressures was the discontinuation of the publication of the M3 measure of the money supply in March 2006. It was discontinued after many economists began to believe that it gave a clearer insight into the rate of growth of money in circulation. This was important because many economists believe that the rate of growth of the money supply influences the inflation rate.


    Fortunately, some economists make a living by monitoring the discontinued statistics and making them available to others for a fee.

    One such organization is The proprietor John Williams and his team monitor much of the important data that is "adjusted" or discontinued. According to them, CPI growth for the last 12 months would have been 7.6%, if the gimmicks introduced since 1990 were removed from the calculations. And according to Williams, if the gimmicks introduced since 1980 were removed, the CPI number would have been 11.8% for the last 12 months. This is versus the published 4.3% CPI."

    From Guild Investment Global Market Commentary
    Written: February 24, 2008

    As often occurs, this may be published at

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