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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 | Link to Comment Jack of All Trades
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Just like Biden said - They're gonna put ya'll back in chains

Thu, 12/20/2012 - 13:51 | Link to Comment New England Patriot
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Yahweh detests differing weights, and dishonest scales do not please him.

Thu, 12/20/2012 - 15:25 | Link to Comment Antifederalist
Antifederalist's picture

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

Thu, 12/20/2012 - 19:26 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment SoundMoney45
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Additional information is available from John Williams at

Thu, 12/20/2012 - 14:31 | Link to Comment TruthInSunshine
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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 | Link to Comment francis_sawyer
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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 | Link to Comment CrashisOptimistic
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"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 | Link to Comment MachoMan
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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 | Link to Comment JohnG
JohnG's picture

Cat food.

Thu, 12/20/2012 - 17:56 | Link to Comment zanez
zanez's picture

Dry, generic cat food.

Thu, 12/20/2012 - 19:03 | Link to Comment Zenseless
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Dead cats.

Thu, 12/20/2012 - 18:24 | Link to Comment Coach McGuirk
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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 | Link to Comment 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 | Link to Comment Ivanovich
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Great article. 

Thu, 12/20/2012 - 15:12 | Link to Comment Mercury
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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.

Thu, 12/20/2012 - 18:55 | Link to Comment redd_green
redd_green's picture

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

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

Oh, so they don't just lie?


Thu, 12/20/2012 - 14:08 | Link to Comment 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 | Link to Comment New England Patriot
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I thought this was a lead-in to a joke...

Thu, 12/20/2012 - 15:34 | Link to Comment NooooB
NooooB's picture

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

Thu, 12/20/2012 - 14:18 | Link to Comment 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 | Link to Comment ParkAveFlasher
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Both are fruits, game theory.  Like Timmy and Ben, interchangeable fruits.

Thu, 12/20/2012 - 14:09 | Link to Comment SheepDog-One
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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 | Link to Comment 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 | Link to Comment surf0766
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Boskin Commission

Thu, 12/20/2012 - 14:14 | Link to Comment hooligan2009
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you get the government you can afford

Thu, 12/20/2012 - 14:14 | Link to Comment Row Well Number 41
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Reality is that which continues to exist, even after you stop believing in it.  --Philip K Dick


Thu, 12/20/2012 - 14:31 | Link to Comment mark mchugh
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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 | Link to Comment Bastiat009
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Why reported 'everything' is different from reality?

Thu, 12/20/2012 - 14:26 | Link to Comment Seasmoke
Seasmoke's picture

Yes they are yanking our chains.

Thu, 12/20/2012 - 14:27 | Link to Comment flattrader
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>>>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 | Link to Comment Winston Churchill
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John Williams @ shadowstats already does that.

Thu, 12/20/2012 - 17:22 | Link to Comment bart.naf
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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 | Link to Comment Perdogg
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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 | Link to Comment haskelslocal
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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 | Link to Comment GubbermintWorker
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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 | Link to Comment DCFusor
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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 | Link to Comment 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 | Link to Comment Terminus C
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They both spew(ed) propaganda... In that way they are the same...

Thu, 12/20/2012 - 14:31 | Link to Comment haskelslocal
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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 | Link to Comment GubbermintWorker
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“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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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.

Thu, 12/20/2012 - 14:59 | Link to Comment Bicycle Repairman
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And in conclusion, stop believing your lying eyes.

Thu, 12/20/2012 - 14:59 | Link to Comment Benjamin Glutton
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Fear not...


Reported by Dr. Lauren Browne:

The first crunchy bite of an inch-long fried grasshopper in a chapulines taco is surprisingly palatable. The reddish-brown bug is coated in Oaxacan-style spices that pepper the tongue and enhance the underlying nutty, earthy flavor of the grasshopper itself. Admittedly, the most difficult part of eating the bug is taking that first bite.

"It isn't as much an assault on the senses as it is an assault on the mind," said Dan Childs, managing editor of the ABC News Medical Unit, who along with several other staff members resigned themselves to taste testing the little critters.



Thu, 12/20/2012 - 16:02 | Link to Comment madcows
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Not enough grasshoppers around here to fill my stomach... I'm thinking squirrels are a more viable option.

Of course, I'd like to fish and hunt for my own food, but the damn license fees required to provide my own food are cost prohibitive.  I'm thinking squirrels might be hard to catch without a gun or trap.

Thu, 12/20/2012 - 15:11 | Link to Comment alangreedspank
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Eventually, the market will just come up with their own numbers and ignore the state's. That'll be around the day it won't believe in the USD supremacy anymore.

Thu, 12/20/2012 - 15:15 | Link to Comment NeedleDickTheBu...
NeedleDickTheBugFucker's picture

arithemetic weighting vs. geometric weighting?

It was my understanding that there would be no math and the overwhelming majority of the citizenry would concur.

Thu, 12/20/2012 - 15:24 | Link to Comment gmak
gmak's picture

If prices are rising faster than wages, it doesn't matter how you account for it. Life is cash-based, not accrual-based.

Thu, 12/20/2012 - 15:48 | Link to Comment jjsilver
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Why Reported Inflation Seems Different Than Reality: FRAUD
Thu, 12/20/2012 - 15:59 | Link to Comment madcows
madcows's picture

Don't piss on me Senator and tell me it is raining down my back.

You all know the truth.  Hell, most of America knows they are lying.  What are you going to do about it?  Nothing.  You are powerless against it.  You vote one crook out, and another takes his place.

In the end, it will all come crashing down.  They can't continue to commit accounting fraud and not have it catch up with them.  And, at some point, they may find their heads detached from the bodies and placed on pikes outside the Capitol.  That's not a threat, you black-helicopter-email-reading-blog-spying-big-brother-snooping-Janet-Napolitano-lesbo-types, that's me looking at the future and saying you had better be prepared for some really angry Citizens when they see that you have destroyed their Country.

oh, and my own YoY inflation calcs say 13%. FU BLS.

Thu, 12/20/2012 - 17:22 | Link to Comment Walt D.
Walt D.'s picture

By using a geometric average, what they are saying is that consumers are interested in the logarithm of prices. 

So you add up the logarithm of the price of everthing in your shopping basket, then convert back to taking the expoential. I wish I could do this in the supermarket!

The fraud perpetrated here uses the Arithmetic-Geormetric Mean Inequality that states that the arithmetic mean is always greater or equal to the geometric mean, equality only occuring when all the numbers being averaged are equal.



Thu, 12/20/2012 - 17:34 | Link to Comment PAWNMAN
PAWNMAN's picture

Paid $1.50 for a pack of gum this morning!!! Not to mention the 20% increase in my health insurance premium.

Thu, 12/20/2012 - 17:44 | Link to Comment bart.naf
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Even the BLS shows a 10-15% hike in health insurance this year.


Alternate measures are at least 3% higher.

Fri, 12/21/2012 - 00:42 | Link to Comment Stuck on Zero
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The Fed never counts "anti-hedonics."  Anti-Hedonics is when you replace that forty year old Maytag washing machine with a brand new Chinese washing machine and it catches fire and explodes three months later.  Or when you replace that 50 year old American Standard faucet with a brand new one made in China and six months later it has corroded into a pile of white dust. 



Fri, 12/21/2012 - 08:39 | Link to Comment NEOSERF
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The unintended consequences are that aging boomers won't retire, will have to work until they drop dead in their CVS cashiering jobs and therefore will not make way for kids who thankfully are just as happy to sit home and play Xbox all day and won't "participate" in the workforce.  Welcome to Italy and most of Europe, it is coming slowly but it is coming.

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