No. of Recommendations: 44
During the last run of inflation, it was regularly complained (as well as pragmatically demonstrated) that the government's model of reporting inflation was significantly under=reporting it...
slice of pizza...Subway ride ... Volkswagen Beetle ...C10 pickup ...When judging longer run inflation like that, it's important to pick examples that are not undergoing much product change, nor primarily driven by legislated situations.
A car now is not at all the same as a new car then, and same for the average newly built 1500 sq ft house. The fare for the subway is probably set much more by politics than by the cost of providing the service, or supply or demand. A men's dress shirt is one traditional example, and the best-selling SLR film camera was a good benchmark for a long time. And though it's legislatively driven, the cost of a first class postage stamp was a good yardstick for a long time. A loaf of bread, a men's haircut, a bar of soap, a paperback novel.
Lots of folks think reported inflation is "fake" because they perceive it to be higher than the reported figures, and those are likely people who are spending an unusually large amount on things with product specific price increases, like health care. Many other people experience much lower than average inflation because they spend disproportionately on things that aren't having that problem, or are falling in price in real terms over very long periods, like clothing or computers or tools. Those folks don't have any suspicion of CPI figures, and they get a real increase in purchasing power if their salaries merely track CPI.
It is because of this strong effect of very product- or service-dependent price changes that the US CPI is (basically) calculated using the median price change, not some sort of average that would inevitably be distorted by a few outliers which might or might not be representative of anything in particular. There was a shortage of eggs in the US and the price spiked, but that price change was all about the shortage of laying hens, not anything to do with a US dollar being worth less.
Personally, I look at the MCT (multivariate core trend) inflation figures. This is based on the notion that the inflation for any product is the sum of (a) a single global monetary inflation amount in the period, plus (b) a factor specific to that product category. So, for 100 product categories, you get 101 factors: one for each category, and one to rule them all.
Go here and click on the graph to see the latest figures.
https://www.newyorkfed.org/research/policy/mct#--:...Latest number year-on-year is 3.05%. Basically top of the flattish range since mid 2023. For the deeper geeks, the "decomposition" tab tells you that, though US MCT inflation has been flattish for around 2.5 years, housing inflation is a gradually shrinking fraction of the effect and goods inflation has been accounting for a gradually rising fraction. Inflation from services has been the biggest factor among the three, but not becoming bigger. Nor smaller.
So: worry more about the specific prices of the things you're likely to be buying in future, and less about the CPI figures being faked.
That being said, do I expect the US to attempt some Argentina-inspired cooking of the CPI figures in the near future? Seems very plausible. But it would take a whole lot of that to make the absurd figures from Shadowstats make any sense. They suggest that "real" inflation has been about 5%/year higher than reported on average over the last 20 years, implying that the purchasing power of a dollar is only 40% of what a CPI-adjusted dollar would imply over that stretch. That simply isn't true. It's much more defensible that a dollar has lost general purpose purchasing power since 2005 at about 2.5%/year than at about 7.5%/year. Follow the haircuts and soap.
Jim
