When most of us think about inflation, we think of the prices of the things we buy regularly. The government supposedly measures that in the CPI – Consumer Price Index.
I think that intuitively most of us experience a higher level of inflation that the government reports.
There’s a reason for that. The government doesn’t measure inflation, at least as classically defined. The classical definition is a rise in the “general” level of prices. That should include all things that are bought and sold – that have prices.
The CPI doesn’t do that. It measures a narrowly defined, and statistically manipulated basket of consumption goods and services. And the government does its best to suppress the inflation rate of those items. That’s because the CPI was never intended to measure a rise in the general level of prices. It was intended as a means for indexing the cost of labor contracts and government contracts in eras of high inflation.
Given that purpose, government statisticians have habitually looked for ways to get to these numbers to understate actual inflation. They use hedonics to substitute lower priced goods for higher priced goods when prices are rising because in theory consumers will make that switch. But if we wanted to measure general inflation accurately, wouldn’t we survey the prices of the same goods over time.
The post Two Charts Show How The CPI News Increases The Danger By Underplaying It appeared first on Lee Adler’s Sure Money.