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What Is The Real Inflation Rate?

Discussion in 'Blogs' started by Falcon15, Oct 14, 2011.

  1. Falcon15

    Falcon15 Falco Peregrinus

    The inflation rate. A hotly contested subject among people in the financial "know". The Federal Reserve Bank, which reports on inflation rates and sets the interest rates based on this inflation rate is not reporting the entire story. The Federal Reserve, in their August calculations, stated the annual inflation rate is 3.77% - this number is not accurate. Why? A little history lesson for you:

    Inflation rates are based on Consumer Price Index, or CPI. Two basic types of data are needed to construct the CPI: price data and weighting data. The price data are collected for a sample of goods and services from a sample of sales outlets in a sample of locations for a sample of times. The weighting data are estimates of the shares of the different types of expenditure in the total expenditure covered by the index. Now, the Fed, after the "findings" of the Boskin Commission in 1996, does not include energy or food costs in their CPI calculation. Only the Bureau of Labor Statistics (BLS) includes those in their calculation of CPI. Since the BLS numbers are largely overlooked and therefore carry no weight, beyond what your pocket book says, it is discarded. So the Fed sets the interest rates and calculates "accurate" inflation rates. Yeah, and I am the Pope.

    Saying the Fed's inflation rates are spot on and should be a true measure of how we are doing economically is a grossly inaccurate statement, and line of thought.

    The current real inflation is closer to 10%, including food and energy, which Chairman Bernake and the Fed cannot include in their current inflation calculations.

    Caveat: the BLS calculation includes food & energy, but they do not set interest rates, and are typically overlooked. Based on the inflation calculated by the BLS - food and energy have added 5.4% alone to the true inflation rate. Add this to the last reported inflation rate by the fed: 3.77% + 5.4% = 9.17% as of August.

    We have a real inflation rate higher than any year in the 1970's, except 1974 & 1979. In 1974 the real inflation rate was: 11.3%

    The seventh highest annual inflation rate was registered in 1979 with an inflation rate of 11.22%. 1980 had the sixth highest historical inflation rate on record since 1914, with an annual inflation rate of 13.58%, fifth was 1947 14.65%, fourth was 1920 - 15.90%, third was 1919 - 15.31%, second was 1918 -17.26%, and of course the king of inflationary years was 1917 - 17.80%. When the Fed is reporting accurate inflation calculations, inclusive of food and energy it is only then we should be willing to look at inflation without a jaundiced eye.
  2. sarawolf

    sarawolf Monkey++

    Hopefully most people know all their numbers are fudged. Another good post.
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