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No Inflation? Look Around

August 3, 2012

Proponents of the Federal Reserve’s QE (Quantitative Easing) program are quick to dismiss the reality of inflation in the US. Most point to the CPI (Consumer Price Index), which increased by a “mere” 1.7% over the past year. And most say the Fed has done an extraordinary job keeping the inflation rate in check. Yet, few fail to realize that the figure has been skewed to create the illusion of monetary stability. Look around you. Can you honestly attest to an inflation rate of 1.7%? As someone who found the Frontega Chicken at Panera had soared over a dollar in price the other day (unless I was somehow being swindled), there’s no possible way inflation stands so low.

How does the government get away with a 1.7% inflation rate? Well, it all depends on the method of calculation. In the 80s, government introduced a scheme to make the inflation rate seem lower than it is, through adjusting for “changes in quality”. Explains economist John Williams:

“Up until the Boskin/Greenspan agendum surfaced, the CPI was measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept. The identical basket of goods would be priced at prevailing market costs for each period, and the period-to-period change in the cost of that market basket represented the rate of inflation in terms of maintaining a constant standard of living.”

In the late 80s and early 90s, however, there was an uproar over the supposedly “overblown” inflation rate. Instead of comparing virtually the same products with one another and noting their differences in price, the Bureau of Labor began “accounting” for changes in quality. Williams discusses this through the example of someone switching from steak (more $) to hamburger (less $):

“The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.”

As it turned out, the inflation rate became grossly understated, as the initial comparison of an identical basket of goods turned into something completely and utterly perverse. Here’s a chart of what inflation actually looks like in relation to how it’s purveyed.

Image

So inflation’s nearly at 10%. That would explain a gold price of $1600 an ounce, or oil at $90 a barrel. And that would actually explain the soaring prices we see all around us, from tolls to groceries to gasoline to my Frontega Chicken at Panera.

If you think about it, doesn’t it make perfect sense? A distortion of the inflation rate would allow for incredibly expedient measures on part of the politicians. Properly adjusting social security checks for inflation becomes a thing of the past. GDP growth suddenly starts looking relatively good. And people are able to lose money through erosion of their savings without actually knowing it. Isn’t it a brilliant ruse? All it takes is a skewed inflation figure, and financial problems of enormous caliber become non-existent.

I just hope people are smarter than this. 1.7% inflation? Give me a break.

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From → Ideology

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