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Guest Post: Why Reported Inflation Seems Different Than Reality

Tyler Durden's picture


Via Lance Roberts of StreetTalkLive,

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Thu, 12/20/2012 - 13:50 | 3083313 Jack of All Trades
Jack of All Trades's picture

Just like Biden said - They're gonna put ya'll back in chains

Thu, 12/20/2012 - 13:51 | 3083317 New England Patriot
New England Patriot's picture

Yahweh detests differing weights, and dishonest scales do not please him.

Thu, 12/20/2012 - 15:25 | 3083728 Antifederalist
Antifederalist's picture

Yep, oldest trick in the book.  But the times they are a changin'

Thu, 12/20/2012 - 19:26 | 3084513 asteroids
asteroids's picture

Shame on politicians. The CPI should truthfully be reported. Tweaking it is in essense stealing from retirees. The CPI should be measured withi something similar to the MIT "billion price" project.

Thu, 12/20/2012 - 16:28 | 3083994 rotagen
rotagen's picture

The drones will continue their 9-5 slavery until the fat lady sings.... game over.  At what point do you realize the game is rigged people.

Thu, 12/20/2012 - 13:51 | 3083315 NEOSERF
NEOSERF's picture

Great article confirming what we all think and now know.  Note that this game continues until it becomes really embarrassing to defend at which point the government just decrees that it won't be issuing a CPI number anymore.  This is where we are headed...ratings agencies, unemployment and inflation are all fine, truly feels more and more like the Matrix every day.

Thu, 12/20/2012 - 13:55 | 3083324 Cognitive Dissonance
Cognitive Dissonance's picture

"The sole purpose in mis-measuring inflation is to fool businesses, individuals and government into mis-adjusting their financial planning for the impact of inflation."

Fixed it for ya. :)

Thu, 12/20/2012 - 19:35 | 3084562 Nobody
Nobody's picture

Good to know you are still around pontificating.
I invoked your name yesterday in explaining society's non reaction to this fiscal mess to my son.
Happy holidays and I expect more missives from you in the new year.
Take care

Thu, 12/20/2012 - 13:56 | 3083330 SoundMoney45
SoundMoney45's picture

Additional information is available from John Williams at  www.shadowstats.com

Thu, 12/20/2012 - 14:31 | 3083471 TruthInSunshine
TruthInSunshine's picture

Your avatar rocks.

When they reincarnate the Federal Reserve, after the Mr. Creosote-like explosion from all the toxic debt it's intentionally gorging on, do you think they'll change the name to The Bank of Prosperity For The American People, or something even more catchy?

Thu, 12/20/2012 - 13:58 | 3083331 francis_sawyer
francis_sawyer's picture

The Roman Empire probably only made it 500+ years because clipping coins was the technology of the day [together with the abacus]...


Modern technology will actually hasten the demise of the latest & 'CIVIL'[cough cough]-ization du jour...

Thu, 12/20/2012 - 14:03 | 3083340 CrashisOptimistic
CrashisOptimistic's picture

"People in that position had an average initial monthly benefit of $1,435, or $17,220 a year, according to the Social Security Administration. "

Horribly deceptive.

The average Soc Sec recipient gets $1230/mo or $14760/yr.  They cherry picked that number to make it look livable.  You get into median and average stuff, but in general nearly half of retirees are below $14.7K/yr.  Think you can live on that?

The most common retirement income level is between $15,000 and $19,999 annually, an income range that 12.6 percent of retirees fall into. 

For 36% of retirees, SS represents over 90% of total income.  For over 50% of retirees, SS represents over 60% of income.  How do you cut that and have them not die?

Thu, 12/20/2012 - 14:59 | 3083603 MachoMan
MachoMan's picture

Depending where you are in the country, that can be totally livable...  especially when considering it is SUPPLEMENTAL income...  and is aided by numerous other governmental benefits that may not show up as "income" but that none-the-less provide significant benefit.

I think a means test would be more palatable than a whack across the top to all, but I'm not the policy maker...

Thu, 12/20/2012 - 15:42 | 3083788 JohnG
JohnG's picture

Cat food.

Thu, 12/20/2012 - 17:56 | 3084233 zanez
zanez's picture

Dry, generic cat food.

Thu, 12/20/2012 - 19:03 | 3084440 Zenseless
Zenseless's picture

Dead cats.

Thu, 12/20/2012 - 18:24 | 3084305 Coach McGuirk
Coach McGuirk's picture

His example was for the average of people retiring at age 65 in the 2000, not for the average of all SS recipients.

Thu, 12/20/2012 - 14:00 | 3083345 A. Magnus
A. Magnus's picture

CPI also figures into the COLA increases for programs like social security; it's in the government's interest to under-report inflation so they can under pay retirees long enough so that the old people have to choose between food and medical care and die off sooner. Then the feds have even LESS to pay out in the long run...

Thu, 12/20/2012 - 14:02 | 3083350 Ivanovich
Ivanovich's picture

Great article. 

Thu, 12/20/2012 - 15:12 | 3083367 Mercury
Mercury's picture

Furthermore, a side effect of artificially suppressing inflation is that taxes would slowly increase because annual adjustments to income tax brackets would be smaller.  This would eventually push more people into higher tax brackets allowing fewer people to be eligible for anti-poverty programs like Medicaid, food stamps and school lunches. 

Since when do tax brackets adjust for inflation? The AMT certainly doesn't.  I don't think we have to worry about entitlement shrinkage either...due to inflation or anything else - if only!

I see the above chart but does anyone know where/how you can find or back into (with the actual components) the old-school CPI using current inputs?

 Update:  Of course, duh. http://www.shadowstats.com/

Thu, 12/20/2012 - 18:55 | 3084408 redd_green
redd_green's picture

Naahh. People making 12k a year will never get that far.

Thu, 12/20/2012 - 14:07 | 3083373 CrashisOptimistic
CrashisOptimistic's picture

BTW, where is the talk of ALL MILITARY AND US CIVIL SERVICE PENSIONS ALSO BEING CUT LIKE THIS?  Are they seriously going to just do Soc. Sec?

What about Congressional and President and Judge pension COLAs?

Thu, 12/20/2012 - 14:07 | 3083374 No Euros please...
No Euros please we're British's picture

Oh, so they don't just lie?


Thu, 12/20/2012 - 14:08 | 3083380 Just Observing
Just Observing's picture

Wife came back from the store this morning and said: "Do you know what White House Apple Sauce is up to ?..........$1.53 A CAN !" 

Last time she bought some, it was in the 50 cent/can range......and was 4 cans/$1 for years and years.


Nah....there isn't any inflation.......

Thu, 12/20/2012 - 14:17 | 3083424 New England Patriot
New England Patriot's picture

I thought this was a lead-in to a joke...

Thu, 12/20/2012 - 15:34 | 3083756 NooooB
NooooB's picture

Oh!.... "Ping Pong Balls"!... I thought you said "King Kongs Balls"!!!.....

Thu, 12/20/2012 - 14:18 | 3083426 game theory
game theory's picture

No...not only is there no inflation...but thanks to the chained CPI calculation, you can replace the apple sauce with, say, a $0.10 banana...and voila....deflation.

Thu, 12/20/2012 - 14:22 | 3083437 ParkAveFlasher
ParkAveFlasher's picture

Both are fruits, game theory.  Like Timmy and Ben, interchangeable fruits.

Thu, 12/20/2012 - 14:09 | 3083384 SheepDog-One
SheepDog-One's picture

Whoa REALLY? You mean it's ALL just fake numbers and I'm not supposed to notice real inflation like a quart of Mobil1 was around $4 a few years ago and now is $10?

'No inflation' my ass.

Thu, 12/20/2012 - 14:45 | 3083515 game theory
game theory's picture

The economists figure you can replace Mobil1 with Snake Oil...lots of that is available these days.

Thu, 12/20/2012 - 14:12 | 3083401 surf0766
surf0766's picture

Boskin Commission

Thu, 12/20/2012 - 14:14 | 3083408 hooligan2009
hooligan2009's picture

you get the government you can afford

Thu, 12/20/2012 - 14:14 | 3083416 Row Well Number 41
Row Well Number 41's picture

Reality is that which continues to exist, even after you stop believing in it.  --Philip K Dick


Thu, 12/20/2012 - 14:31 | 3083433 mark mchugh
mark mchugh's picture

One thing Milton Frieman got right:

Inflation is always and everywhere a monetary phenomenon.

Inflation isn't "price changes."  It's what happens when money is created out of thin air.  If people take that money and stuff it in their mattress (or 401k, for that matter), that money has no effect on prices UNTIL people actually start spending it

The dollars have already been created.  It's when everybody notices prices are rising and reaches for their giant pile-o-paper to get stuff simultaneously that there's a problem.  You can't spend the paper fast enough.

Savings?  Worthless in no time flat.

Investments?  You'll need to cash them out for food. As will everybody else (in other words, collapse)

Financing?  Gone

The idiots who say inflation is low don't understand what inflation is.  They're the same people who wander onto the beach just before a tsunami hits going, "Check it out, the ocean is GONE!"

It'll be back...


Thu, 12/20/2012 - 14:24 | 3083445 Bastiat009
Bastiat009's picture

Why reported 'everything' is different from reality?

Thu, 12/20/2012 - 14:26 | 3083449 Seasmoke
Seasmoke's picture

Yes they are yanking our chains.

Thu, 12/20/2012 - 14:27 | 3083455 flattrader
flattrader's picture

>>>In the coming weeks ahead, in collaboration with my friend Doug Short, we will be introducing an inflation index which will be reconstructed along the same lines as the original form of CPI using an arithmetically weighted calculation on a fixed basket of goods.<<<

Thank you very much.

Thu, 12/20/2012 - 14:36 | 3083489 Winston Churchill
Winston Churchill's picture

John Williams @ shadowstats already does that.

Thu, 12/20/2012 - 17:22 | 3084134 bart.naf
bart.naf's picture

As do I and for quite a while:




Issues with CPI-U accuracy.


The simplest evidence that CPI substantially understates inflation is the decrease in standard of living and purchasing power of seniors who have lived for a few years with their total income only based on Social Security payments.


The medical cost component of CPI-U is about 7% of its total. GDP medical costs are about 17% of total GDP. Medical inflation is amongst the highest of all CPI components. Since CPI-U medical share is substantially understated as a percent share of total CPI-U, it causes significant understatement of inflation. Consumers pay for all medical care, sometimes indirectly via taxes (which is also not in the CPI, even in memo form), etc.


Hedonic adjustments (accounting for quality and feature etc. increases) are made in the CPI, but no reverse hedonic adjustments (accounting for quality and feature etc. decreases) are made. Failing to account for the many things like smaller airline seats or 'plastic' dining room tables causes CPI to be understated.


Geometric weighting and substitution bias adjustments in the CPI do things like increase the weight of chicken prices when beef prices go up. Although people do tend to buy more chicken when beef prices go up, it's also a decrease in the standard of living - which again understates actual inflation. An accurate cost of living or inflation index should not contain adjustments which involve a lower standard of living.


The CPI Owners Equivalent Rent (OER) calculation has done a poor job of tracking real housing costs when compared to housing indexes like Case Shiller, thereby understating inflation especially during the housing bubble.


Health insurance costs have only been tracked in CPI since 2005, but it has understated actual costs quite substantially when compared to government CMS and private industry Kaiser health insurance cost data.


No actual facts about specifics of actual prices and price adjustments are available from the BLS. The raw data is just plain unavailable and it is a closed system, preventing anyone from confirming or denying CPI accuracy. The Federal Reserve is actually way more open.


Taxes are not included in CPI. How can a price index that states it measures actual inflation not count taxes (even in memo form), which have been as high as 33% of income since 1913? Taxes have a price and are paid by consumers.



Thu, 12/20/2012 - 14:28 | 3083456 Perdogg
Perdogg's picture

How do you account for comparisons when technology changes. For example, the price of a TV. How do I compare a TV I bought in 1997 with the TV I bought in 2011?

Thu, 12/20/2012 - 14:36 | 3083491 haskelslocal
haskelslocal's picture

Hedonics would suggest that the 1997 TV cost $200. The 2012 TV is priced at $400 today but actually costs the same after $200 worth of benefits are removed that you didn't have before. Deduct HD technology, flat screen, LCD, etc. Hence, the price for today's TV has gone down exponentially.

You can see these numebers can be whatever you want them to be. How do you price value HD vs. standard definion? It's a guestimate. 

Thu, 12/20/2012 - 14:36 | 3083494 GubbermintWorker
GubbermintWorker's picture

Through their hedonics massage! Today's TV's are so much better than those in 1997 so that will knock the inflation figure into negative areas!

Thu, 12/20/2012 - 15:15 | 3083670 DCFusor
DCFusor's picture

The trouble is, I can't buy that 1997-featured TV at what should be the reduced price hedonics assigns to it.

Another example - computers/smartphones.  Now they are twice as fast, at the same price more or less.  So, according to hedonics, they've gone down 50%.  But I can't buy that half-speed one for half the price - it's not available on the shelves.  I have to buy half as many new ones to get the same effect.

Try that with your office cubicles - you now get to share a computer/smartphone instead of having one for each person, and see if productivity stays the same...  Yeah, right.

No inflation measure is going to get it right anyway.  I'm at a kind of strange point in life where most of what I buy is just plain food, plus a bit of energy (but I'm off grid solar, electric car, so not much energy).  Little to no health expense (yet, but I ain't getting any younger).  No debt.  Paid off home - so using home prices (dropping) in CPI to cancel other things going up is bogus, totally, it doesn't help me - I'm not in the market, and should I want to sell, I get less!

Now, a neighbor spends most of what they get on health care.  Which is going up faster than anything else.

While someone just starting out is buying all manner of things - furniture, silverware (hope it's really silver), other kitchen stuff, appliances, and so on.

Obviously, no one measure of costs covers all 3 cases, no matter what you do. 

This doesn't let the government off for cooking the books to keep COLA's down, however.


Thu, 12/20/2012 - 22:19 | 3085218 Being Free
Being Free's picture

Your right of course, every consumer is different. "CPI" will only make sense in a totally planned economy where every consumer is the same because there is only one thing on the shelf to purchase.  Maybe they're just ahead of themselves with the metric.

Cat food for everyone.  Look, the CPI went down!


Thu, 12/20/2012 - 14:40 | 3083502 Terminus C
Terminus C's picture

They both spew(ed) propaganda... In that way they are the same...

Thu, 12/20/2012 - 14:31 | 3083470 haskelslocal
haskelslocal's picture

So artificial inflation metcics is a farce meant to decrase government spending behind a curtain of lies.

Proof that the only spending to be cut is the spending yet to occur and the spending that they don't have to admit to cutting.

If you can't see it it's not there magic tricks.



Thu, 12/20/2012 - 14:33 | 3083481 GubbermintWorker
GubbermintWorker's picture

“Economics and policymakers generally make the assumption that when prices rise, people will turn to a less expensive product. They’ll buy chicken instead of more expensive beef, iceberg lettuce instead of arugula, store-brand, instead of name-brand cereal. The chained CPI attempts to account for how people react to inflated prices.


Ahhhh, I see. So next when the price of chicken goes higher I'll buy the expensive canned gourmet dog food before I resort to the cheap kibble?


How's that shit taste?

Thu, 12/20/2012 - 14:50 | 3083546 NoDebt
NoDebt's picture

Not bad, actually.  Made chili in college out of Cadillac-brand dog food.  It was a.... um.... "joke" we were playing on somebody.  He ate the bowl clean while we could barely keep from laughing.  Asked him how it was and he said it was "awesome."  We could have fed it to him all semester and he wouldn't have known.

Cat food is even better, I'm told.  Almost like people food.

Thu, 12/20/2012 - 14:35 | 3083490 q99x2
q99x2's picture

That's one data set the crooks and invading forces use to take over this country. Bitcoin is an answer.

Thu, 12/20/2012 - 14:42 | 3083508 shovelhead
shovelhead's picture

He ain't kidding.

My EBT card only gets me half as many lobsters as it did before.

And the bitches make me boil them myself.

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