The CPI Inflation Number Is A Lie, And That’s A Fact

It is important to remember the CPI inflation number is a lie. This means even if the CPI falls dramatically in 2023, we may, or most likely will still have inflation. When economic growth is slow and unemployment rises, inflation takes on the moniker of stagflation. Currently, the website
ShadowStats claims real inflation is closer to 17.15% rather than the 8.5% that the media, the Biden administration, and the
Federal Reserve claim.

America’s inflation is now the highest since 1981. The number slightly above 17% is based on calculating inflation the same way
economists and politicians did in the 1980s. Yes. inflation is a problem and indicators such as the inverted yield curve in the bond market are screaming that we should expect a recession. Considering what we are seeing and the fact Fed Chairman Jerome Powell has warned of pain ahead, there is good reason to think he is telling the truth. 

The crux of this issue is that there is a huge difference between these two views of inflation and accepting the wrong number as fact could greatly impact your future. This rapidly becomes apparent in retirement for those older Americans fortunate to have accumulated some savings. The problem is that unless their investments perform at least as well as inflation they face seeing their wealth vanish into the deep dark hole of inflation.

This Chart Indicates The CPI Inflation Number Is A Lie

Decades ago, politicians and those concocting this system created it as a way to reduce
the cost of living adjustments for government
payments to Social Security recipients, etc. By moving
to a substitution-based index and weakening other
constant-standard-of-living ties those reporting inflation have muddied the water lessening the impression of just how
much our cost of living is being impacted by inflation. The general argument used to promote this change was that changing relative costs
of goods results in consumers could easily substitute less-expensive goods
for more expensive goods, the reality is that this assumption is often false.

Allowing for a substitution of goods within
the formerly “fixed-basket” supposedly allows the consumer flexibility in
obtaining a
“constant level of
satisfaction.” This adjustment to the inflation measure was touted as
more
appropriate for the GDP concept in measuring
shifting demand and weighting actual consumption. Other tricks were also
used to give the illusion of less inflation. In cases where the quality
of the
product is deemed by the government to
be “improved” prices in the CPI, calculations
are now adjusted lower to offset the higher quality. Extending this idea
the Baskin Commission Report, December 4, 1996, actually used
steak and chicken as its substitution example. 

While substitution-related alterations to inflation methodologies

were
made beginning in the mid-1990s the introduction of major changes to
concepts geared towards making us feel better about things began in the
1980s. The aggregate impact of the reporting
changes since 1980 has been to reduce the reported level of annual CPI
inflation by roughly seven percentage points meaning there is no
question as to the understatement of inflation. If the methodological
changes did not reduce CPI inflation reporting significantly, the
politicians would not have pushed the changes through. Where the rubber meets the road is that without
these changes, Social Security checks would be more than double what
they are
today.

Basing Decisions On A False Inflation Premise Is Problematic

Of course, if you concede the real rate of inflation is higher than the CPI indicates, charts such as the one above become invalid. Higher inflation than reported also feeds into the Fed being forced to raise the interest rate to destroy and slow demand. Expect a hard landing, wild rallies in the markets in my view are more a reflection of investors taking short positions using tight stops. This means those shorting this market often paint a target on their back and become sitting ducks for the algorithms generated by computer trading. These rallies are not a sign of a strengthening economy. All this translates into volatility and a somewhat unstable investment landscape. 

The ugly reality of inflation is apparent during a shopping
trip to a grocery store or stores such as Walmart. Sadly, what we see is the type of inflation that directly impacts many
of the consumers that can least
afford it. Recently product manufacturers like Coca-Cola, Pepsi, and
Procter &
Gamble all
started raising prices across the board, which means
that “something has to give.” Retailers can only absorb so much of
these increases before being forced to pass them on to
consumers. Walmart values low prices and it is a key part of its
marketing strategy but higher wages, transportation costs, and
e-commerce investments have all
pressured Walmart to bump many prices higher.

Years ago when America was experiencing what the late economist Allen Meltzer described as “The Great Inflation”
his take was that inflation generally was not considered a major
problem until it rose into the double-digit area. Still, I maintain the
view the manipulation of data to artificially lower the
official rate of inflation is very harmful in that it feeds into the illusion of economic
stability. This helps both politicians and central banks sell the idea
that inflation is
not and will not become an issue. 

The problem comes when these bogus CPI numbers are used
by individuals to plan and
make decisions concerning their investments and retirement needs. I
further
contend that inflation would be much greater if more money
was flowing into tangible goods rather than paper investments and
promises. For proof of the real rate of inflation just look at the
surging replacement cost resulting from recent storms and natural
disasters. 

Beware, taking the CPI numbers reported to heart may cost you dearly in the coming years. We are lied to about how invasive inflation has become and how our
currency is being debased. The only way we can protect ourselves is to
invest in places that give us a chance to move with inflation. This is not easy
and the risk associated with doing so is often great. How to protect our wealth from the scourge of inflation has become the most crucial economic issue individuals face. Good luck with that.

 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)