The Trump Administration Is Manipulating Inflation Data
The Trump administration is now actively gaming the inflation data.
For decades, the U.S. has understated the true state of inflation by applying various accounting gimmicks to the inflation data: the Consumer Price Index (CPI) and the Producers Price Index (PPI).
The primary reasons for this are because A) it allows policymakers to hide the decline in living standards in the U.S. and B) the U.S. can continue to underpay Social Security COLA benefits based on lower inflation data.
Some of the more egregious gimmicks the U.S. applies to the inflation data are:
- Substitution Effects The BLS assumes consumers substitute cheaper goods when prices rise — e.g., if beef prices spike, they switch to chicken.
- Hedonics (Hedonic Quality Adjustments) If a new TV costs the same but has better resolution, BLS records that as a price decrease because you’re getting more quality per dollar. This depresses the measured price of electronics, appliances, and cars substantially.
- Owners’ Equivalent Rent (OER) Rather than measuring actual home prices, the BLS asks homeowners what they think they could rent their house for.
- Weighting of the Basket The basket weights are updated periodically but still don’t fully reflect how ordinary Americans spend money. Lower-income households spend far more of their income on food, energy, and housing — the most volatile and often highest-inflation categories. Upper-income consumption patterns (more services, discretionary goods) pull the average down.
- Core CPI Strips Out Food and Energy The most-cited “core” measure explicitly excludes food and energy.
Yesterday the U.S. released its PPI data for the month of March. And it was a DOOZY.
First and foremost, the BLS claimed that energy prices only rose 8% in the month of March. In reality, oil prices were up 47% while gasoline prices were up 32% by the 13th of March (the date at which the BLS records price changes).
A second odd item was that the BLS managed to achieve this low inflation print primarily through a large decline in trade services (negative 0.3% to be precise). This is an odd component in general because it has NOTHING to do with what consumers pay for goods and services. Instead, trade services simply measure profit margins at retailers and wholesalers as this is believed to imply what future inflation might be (if costs continue to rise at some point retailers/ wholesalers will raise prices).
And this accounts for 1/5th (~19%) of the PPI measure!
Yes, one of the most important inflation measures in the U.S. derives 1/5th of its value from a metric that has NOTHING to do with actual inflation in the month in which it’s measured.
And on and on.
The point I am trying to make with the above analysis is that the March PPI was not a real-world measure of inflation; it was carefully crafted/ manipulated to come in cooler than expected.
And the markets know it!
The ratio between gold and stocks continues to favor gold. This is a major “tell” from the financial system that we are shifting into another inflationary regime. Gold typically outperforms stocks during periods of higher inflation.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research