How Phony Inflation Numbers Mask GDP Weakness

Phoenix Capital Research's picture

Earlier this week, we wrote about how inflation is hidden both by the Feds and by corporations.


Why hide inflation? Well for one thing, understating inflation allows you to overstate GDP growth.


One of the biggest games played by the bean counters in Washington. in the US is the overstatement of GDP growth by understating inflation.


Consider this simple example. Let’s say that the US GDP grew by 10% last year. Now let’s say that inflation also grew by 10%.


In this scenario, real inflation adjusted GDP growth was ZERO. However, announcing ZERO GDP growth is a major problem politically.


So what do the Feds do? They claim that inflation was just 8%, and BOOM you’ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.


This game is played all the time via a metric called the GDP “deflator.” Technically what this is meant to do is remove the effects of inflation from the GDP growth numbers to show what real growth was.


However, what it actually ends up being is an accounting gimmick that allows the numbers to overstate GDP growth.


By now, we all know that the CPI numbers understate inflation significantly. But the Federal Government uses a GDP deflator that is even lower the CPI.


This is like measuring your height in “inches” that are actually centimeters. In reality you’re still the same height, but nominally you look a lot taller.


Inflation is a very real problem for the economy and for the US financial system. We’ve been told to believe that it is a necessary evil, but the reality is that it concentrates wealth, weakens the US dollar and raises the cost of living.


None of those are beneficial to the US as a whole.


Since 2007, the world’s Central Banks have collectively put more than $10 trillion into the financial system since 2008. To put that number into perspective, it’s equal to roughly 15% of global GDP.


This kind of money printing is literally unheard of in modern history. And it has set the stage for a roaring wave of inflation to hit the financial system. Indeed, the first signs are already showing up... not in the “official” Government data (which is bogus) but in how those who run businesses around the globe are acting.



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Best Regards

Phoenix Capital Research




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ThisIsBob's picture

It also saves tons of money in cola adjustments to civil service, military and social security "entitlements" as well as similar private retirement plans.

cynicalskeptic's picture

If you accept the fact that ALL forms of government statistics are now purely propaganda  intended to mold and manipulate public opinion, then it all makes sense.

MOPE (management of perspective economics) RULES!  - Manipulate how reality is perceived when you can't change the reality. 

IREN Colorado's picture

Our government is releasing data that is clearly fudged, bungled, made up, or just simply lied about on a daily basis. Because of this it is impossible for a business person to determine the actual effect of inflation on the macro-economic economy. He or she is left to view the economy from their anecdotal experiences and this simply shows that buying power is falling like a stone cast into the sea.  This creates a very conservative approach towards personal investment, expansion of business, or risk & investments. The net result is it prevents job creation, prosperity, and economic expansion.

Add this to the fact that taxes are higher than ever before and every tangible cost of doing business is being taxed or regulated beyond the ability for the economy to absorb and you have a perfect storm of economic destruction.

On the other hand we have signed up another 4 million people for Obama-care who previously were insured elsewhere in the private market while insuring fewer net people today than we had before at a much greater expense to the economy and the taxpayer.

So we have that going for US.....


cynicalskeptic's picture

On the 'plus' side, understating inflation REDUCES government expenditures on things like Social Security and other payments tied to cost of living.  

Though it sucks if you're one of those receiving such payments ........  but then consider it a prelude to total cessation of such payments (or total worthlessness of such payments when inflation really gets going)


and it's not as if ANY form of 'lower costs' means lower taxes

lasvegaspersona's picture

My best guess is that our GDP is really less than 10 trillion a year. After you get rid of all the phoney deflators, the imputed parts (such as imputing the cost to rent an equivalent property for those who hold mortgages) and finally the government spending enabled by borrowing you really begin to see how bad it is.

The government can tweak the numbers but ultimately on the streets....things ain't all that great. Eliminate cars purchased with borrowed money and rents paid with student have what some might see as a longish depression...kind of thingy.

Stuck on Zero's picture

On every measure of industrial production, building, and services the U.S. lags China by %50-95%.  Yet we claim to have a higher GDP.  What a farce.


JustObserving's picture

This game of understating inflation has been going on since at least 1990.  Shadowstats states that inflation is understated by at least 3%.  If you correct US GDP from 1990 for 3% understated inflation, then current GDP is only $7.7 trillion instead of $16 trillion.

Debt to GDP then is 227% and Unfunded Liabilities to GDP is 1667%.

SweetDoug's picture




They never state that they take inflation out of the GDP numbers, so I don't believe a bit of what they say.


Also, take out QE and we're under water, aren't we?



steveo77's picture

Inflation steals from the responsible and rewards the "druken sailors"

Inflation benefits the game plan of The Criminals That Be, while not hurting them so much since those with first access to money (TCTB) still do fine in an inflationary period.

CoastalCowboy's picture

No, I don't notice at all when a truck tire I purchased 3.5 years ago costs at $150 now costs $194 to have replaced for the exact same make of tire. I don't notice either when a bag of my dog's food costs 40% more for 25% less product over the course of the past 7 years.

I could go on and on, but I must be some sort of outlying freak or something as the MSM keeps telling me that we have no inflation.

Don't even get me started on candy bars, bacon, seafood or steak as I can easily hedonically adjust myself into pink slime and road pizza.

cynicalskeptic's picture

My local property taxes have more than tripled over the last 20 years while roads are potholed and services decline.

SweetDoug's picture




Wow! You're not being a team player!


elwind45's picture

If you like your Chinese dodadd you can keep your Chinese dodadds ROFLOL I will just have to spread my purchases to afford what I need and get less joy more times?

elwind45's picture

The consumer in the stores really could give a shit what prices have become. They just reach deeper and more often and complain little now except to themselves. The company makes the same from half the scan and gold well you better start worring about what Joe Q. Really thinks about it. If you cant eat drink or smoke it than just keep it. Its about income and fuck VALUE-J YELLEN?

Okienomics's picture

Well done Phoenix Capital ... only a decade behind John Williams at in this keen insight. I think I'll skip the free report since I read his in 2008.

Ban KKiller's picture

Inflation is not hiding in some dark corner. Inflation is in the stores right now! Do you not shop for products like food?

Sees are planted and inflation is growing just fine like a deadly weed choking the flower of ....well, something.

JerseyJoe's picture

But, but didn't central banks add closer to $20T????    ZH tells us China tacked on over $15T itself. 

El Hosel's picture

Understating inflation = more / longer ZIRP      The machine wants free money and cooks the books accordingly.


" Hidden Inflation" , yeah its hidden alright....... unless you eat,drive a car, go to the doctor, pay insurance, go to school.

  Hey Phoenix Capitol, Congradulations on getting smacked upside the head with these profound revelations!

AdvancingTime's picture

After much thought I have come to the conclusion that while inflation appears tame and is not showing up in a big way the seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters.More on this subject in the article below.


layman_please's picture

almost everything in public sector is cpi adjusted. imagine the real cost of state pensions, salaries and everything else when they would be calculate based on the reality. just another way to kick the can for already insolvent governments.