Have you always been suspicious of the Economic data coming out of the swamp?
If so then this is the report for you. This 17 page brief cuts to the chase and lets you know exactly how the numbers are rigged.
In this report we cover how the following numbers are rigged: GDP, uUemployment and Inflation data.
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When we hear people talk about what a great job Obama has been for the economy, it is usually because of the following factors: He averted the Great Depression, Americans are working again, deficits have gone down, inflation is low, the GDP (Gross Domestic Product) is the highest in the history of the world, and he saved the auto industry etc.
For part number two of this series of “How It's Rigged”, I’m going to address the inflation rate and how the government hides the true inflation rate.
The above chart depicts inflation as measured by the CPI-U from the Bureau of Labor Statistics. For those of you who read my last post or watched my last video your probably on to the fact that maybe this rate is manipulated as well. Better yet anyone who has ever been to the grocery store can probably tell you that as well. As of this writing, the year over year CPI-U currently stands at .8%
One thing many of you may not realize is that the government changes their methodologies about how they calculate these numbers. I’m not going to get into exactly how they did this but if we take a look at what current inflation is but using a 1990 methodology we get quite the different story.
Applying 1990 inflation calculations to today’s raw data would place the current inflation rate at 5%!
Things get even bleaker once we apply the 1980’s methodologies to today’s raw data as seen below.
Using a 1980’s methodology it would insinuate that the true inflation rate was just a few ticks under 10%.
Another way the government distorts the data is by their usage of substitutions or Chained CPI.
Below is excerpt taken from Investopedia.
So if Mrs Smith still spends $20/ month on Beef and Chicken but now because she buys more Chicken and less beef, the net result of Mrs Smith’s inflation could be ZERO!
Inflation can also come in the form of smaller bottles and packaging, lower quality ingredients, etc.
It is true that many of the things we buy today are cheaper, they tend to be luxury goods like TV’s, phones, computers, etc. When it comes to things people need such as food and energy,( which aren’t counted in CPI by the way) or Text books, or college costs or housing costs the average American is struggling to get by.
I think we’ve also seen inflation in many financial assets which have by and large benefited the very same 1% the President likes to rail against. Since most American’s don’t own stocks and have seen their wages stagnate the past two decades inflation is devastating the middle class.
Imagine the retiree who lives off $30k per year. If the price of everything they buy goes up 5% then every 14.4 years their cost of living doubles! If the rate is closer to 10% then their cost of living would double every 7.2 years!
In a later post you can expect me to cover the topic of where inflation comes from, but for now, I hope you have learned the many ways the inflation rate is rigged and another reason you shouldn’t trust the financial media.
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The opinions expressed in this material do not necessarily reflect the views of LPL Financial.