What Does The Real US Inflation Look Like?


I’ve recently revisited a site I hadn’t bothered with for quite some time.  Not that I don’t believe it has excellent information, it does.  I probably got frustrated about the inability to get to the subscription information.  At any rate, it’s a treasure trove of information and economic concepts.  The site is….

John Williams’ Shadow Government Statistics
Analysis Behind and Beyond Government Economic Reporting

I don’t recall the circumstances which led me back there, but, I’m glad it happened.  It reminded me of a post I’ve been meaning to write, but the concept can be a bit tricky to express.  Lo and behold, I don’t have to do all that work!  John Williams already has.

Many people may not know or recall this, but the US federal govt has been tweaking with the way they figure inflation.  It’s quite a bit different than when they figured it in the days of Jimmy Carter.  I won’t reproduce William’s thought in their entirety, but I’ll post his highlights…….

Consumer Price Index Has Been Reconfigured Since Early-1980s
So As to Understate Inflation versus Common Experience

  • CPI no longer measures the cost of maintaining a constant standard of living.
  • CPI no longer measures full inflation for out-of-pocket expenditure.
  • With the misused cover of academic theory, politicians forced significant underreporting of official inflation, so as to cut annual cost-of-living adjustments to Social Security, etc.
  • Use of the CPI to adjust retirement benefits, private income or to set investment goals impairs the ability of retirees, income earners and investors to stay ahead of inflation.
  • Understated inflation used in estimating inflation-adjusted growth has created the illusion of recovery in reported GDP.

If you’re not familiar with this occurrence, I highly recommend reading his comments in their entirety.  He goes through some good detail so people can understand what’s happened.  So, the question remains, what does the real US inflation look like?  If we figured it like we did prior to 1980, here’s what it would be, from Williams’ site.


We should print more money to catch up with this loss!!! 

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11 Responses to What Does The Real US Inflation Look Like?

  1. DirkH says:

    Bunga Bunga !

    • suyts says:

      It isn’t hard to figure out that when gasoline is twice as much as it was a few years ago that the real inflation rate is much higher than 2%. I’m glad someone took the time to actually measure the real rate.

  2. Jason Calley says:

    It is also important to remember that the cumulative effect of all those individual years of inflation is not just “how high is the curve now”, but rather is a chained multiplication of all those individual years. For example, ten years of 2% inflation (about what they claim it is) yields a final inflation of 22%. On the other hand, ten years of 8% inflation (more like what it actually is) yields a final inflation of 116%.

  3. HankH says:

    I agree. We should print more money and let me distribute it. 😉

  4. dan says:

    John’s stats are golden…I’ve let him crunch the numbers for awhile.
    It always cheers me a bit to convert prices to silver…because a silver dime still gets me a loaf of bread and 10 silver dollars still fills the fuel tank.And think of all the paper rubbish a gold coin would buy.

  5. cdquarles says:

    Inflation, James, can’t be measured. At best you can estimate it, from surveys, people’s perceptions and self-reported response to the perceptions. Take the widely held, but incorrect belief that inflation is rising prices. It isn’t. Inflation is perceived falling purchasing power, which is solely driven by the supply of and demand for money. These changes may or may not be reflected in nominal market prices. I also remember the comment period when changing the CPI to include substitution effects during the 60s and 70s Great Inflation. There were serious arguments over it.

    You can use, as a first approximation, gold and silver to re-base things. You still have to keep in mind ‘artificial’ changes in the relations between gold, silver, and paper based upon extant ‘crowd’ manic or panic states.

    I do find the linked newsletter interesting. To me, the biggest problem with economics is that folk try too hard to ‘formularize’ it. You can do curve fitting (statistical models ultimately), but that does not mean that the mathematical formulas will hold at all times or in all places (at least until you can reliably model human nature 😉 with statistics). Economics, as generally practiced, could really help itself if the practitioners were more honest about the limitations of their assumptions. The Austrian School, does best because they always take into account the perceptions and actions of the market’s participants and minimize the importance of mathematical and statistical formulations. The others that I have found to be reasonably reliable outside of the Austrian School has been Milton Friedman (he made some whoppers that he admitted were awful), Julian Simon, and Thomas Sowell (better for human attitudes and social interaction than pure economics).

    • suyts says:

      And yet, it isn’t perception that sees the cost for a gallon of milk increase, or, as you put it, the falling purchasing power of our Dollar. We know there is a definite gap between what the cost of goods were one day compared to another.

      I whole heartily agree about the limitations of economics, regardless of the school of thought. But, there are, and always has been, truisms in economics. While precision is impossible, we can know if the thought violates the truisms, the thought is wrong. It’s a blunt tool attempting a straight cut.

      I have a great appreciation for the Austrian school of thought, but, I don’t regard economics in that manner. Mises and Hayek, are both brilliant, as well as the people you mentioned. And, who can criticize Carl Menger?

      I once applied for a job and was asked what my best attribute was. I responded by saying I’m the best thief there ever was. I don’t look at camps in such manner. I take what I deem is best, from what had demonstrably worked, and try to adjoin such things. The people before us did the hard work. Our task is easy.

      I think Sowell is too brilliant to be confined to one school of study.

      • cdquarles says:

        Indeed. People, though, don’t always understand that regulations that reduce supply also increase prices, but these price increases are not due to manipulation of money. This is another factor needed to parse out inflation from our perceived changes. The effect of regulations is conflated with inflation (this conflation can be useful, but when you make decisions, you do best if you take into account as many independent factors as you can). I guess what I am getting at is that you can’t expect the CPI or other price indices, to really measure inflation. You would do better by simply surveying people and not using price indices that can’t do what you want.

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