PERRY: Fake It ‘Til You Make It!

According to Moody’s the latest reported inflation rate is sitting around the 1.5% range.  A modest inflation rate, to say the least, but have you noticed the price of food lately or how much of your budget goes to gas and utilities?  What about those of you spending money on education and the increases you’ve seen over the last three to five years.  Feel like an increase of 1.50% to you?

Well, of course, not.

Welcome to US Government statistics 101.  The way we calculate inflation has changed and you can no longer look at inflation calculations as a good representation of what is happening to your personal budget.  The Bureau of Labor Statistics compiles data for the inflation rate, called the CPI, and issues it monthly.  There are several rates given but the one reported most is the core CPI, which is supposed to represent what you and I see in our homes on any given day.

However, core CPI excludes food and gas costs. So food costs could double and gas prices could double and you would see no movement in the core inflation rate.  The Bureau of Labor Statistics states they change the formula when items no longer show a good representation of the measure of real inflation. So according to the government I do not eat nor drive to a degree to consider these core representations of my costs.  Next to housing, these represent most households’ two biggest budget items, if we ignore income taxes which are conveniently excluded from inflation as well.

So of the top four budget items – items which are more prominent the lower on the income totem pole you are – only one is counted in core inflation.

What are the inflation numbers then?  If we go back to 1980 when food and gas were included, and apply that formula to 2014, we find current inflation is in the  8.5% – 11% range.

Now you see why they like to change the formula.

In fact, according to Bloomberg, food costs are up 19% year to date in 2014 alone. Additionally, if you adjust gas prices from January 2009 for the inflation rates reported by the BLS, regular gas per gallon should cost about $2.00-$2.05 per gallon.  Been to the pump lately?  We are 75% higher than that at most stations, which is a good demonstration of just how far off the inflation numbers really are.

Fact is, inflation is raging.  It makes perfect sense when you see a government combine annual budget spending with the Fed’s unprecedented “QE” spending of over $4 trillion dollars, inflation is the only natural outcome.  What is not natural is when governments spin numbers to such an extent as we see today…..or is that really odd.  One only need to look to the 1970s and 1980s to find a great example of what happens when a government represses inflation data and runs a huge budget deficit, the USSR.  The main focus of “make the data fit our narrative” existed then in the USSR as it does in the USA today.  The results:  the USSR experienced a rapid economic collapse.

The results in America: yet unknown, but given our path…

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