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Discussion: (38 comments)

  1. Why are you using outdated data to make a point about current inflation?

    I have given you updated data before, but you apparently prefer using outdated government stats to validate current government stats.

    As a reminder, if the BLS still used the inflation measurement of the 70s, current rates would be approximately 10 percent (this article is from 2011):

    The American Institute for Economic Research pegs the rate at 8 percent (as of Feb. 2012).

    Peter Schiff, in the article/video you’re implicitly referring to but choosing not to link to, found that the products most Americans buy every month are increasing between 5 and 10 percent per annum.

    As you admit, the BLS uses “hedonics” to engineer lower inflation stats by masking rising prices (if an iPad’s processor speed improves but its price remains the same, the BLS says the price has fallen).

    Of course, the BLS doesn’t ever do the opposite — raise the CPI as products regress or, as is more common, portion sizes decrease. Consumers see this happening every day. The NY Post has a front page article today about Subway surreptitiously reducing the size of its sandwiches. This is happening all the time and it’s not factored into the CPI.

    As someone who knows the basic tenets of capitalism, you should also acknowledge that people make rational decisions based on prices — and that producers retail products at market-clearing prices. So that if people stop buying apples because the prices are skyrocketing, the prices of apples will eventually drop as producers simply want to unload inventory. This does not really mean the cost of producing that apple has actually decreased, only that the economy sucks and people are cutting back. This is another way that the CPI doesn’t accurately reflect rising costs.

    Of course, if you want to debate this issue head on, you have an open invite to appear on Peter Schiff’s radio show.

    1. Ron Paul Disciple

      You’re spot on, Tom. There are implicit incentives for government bean counters to understate inflation: it’s why they manipulate metrics until they find a sweet spot.

      1. Craigers61

        Your spot on Tom, anyone with eyes can go to the supermarket and readily see inflation. Cereal boxes alone have shrunk 25% to 30% in the last 4 years. The the Producrs pirce index is way way up. Gold alone shows you how the value of the dollar has collapsed. Oil and other commodities are increasing and here we have so called “experts” teling us there is no inflation?? What these yokuls never mention is that there is a natural defaltion rate in the economy due to more efficent production and technological advancement which causes prices to naturally fall, the nominal rate of deflation is around 3 to 4% a year, add that on to the CPI number to get closer to the real inflation rate. So in this cae you would be at 5.95% nominally. though this number is still way smaller then what we are seeing in the economy right now.

    2. Trent Rock

      “This is happening all the time and it’s not factored into the CPI. ”
      Fail!!!! :)
      ” If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of ten when they previously were sold by the dozen) of the good or service since the last time prices were collected, the economic assistant selects a new item or records the quality change in the current item.”

    3. The priting of all the money by the Fed has to appear somewhere and it does. In assets, like the stock market. Once the stockholders realize this is all fake wealth, the money will flow into consumer goods and you can expect huge CPI increases. The money has to go somewhere and it has to be spread over assets to include consumer products. We are just kidding ourselves when we look at only the CPI. Right now the newly printed money is in assets not counted in CPI or in bank reserves, but always available to be used when conditions change. And they will.

    4. Michael Owen Jarrett PhD (Engineering)

      Excellent points. They exclude Food, Energy and Housing because they are too volatile! When it comes to cell phones and computers I’ll bet they do not include the cost of providing the service which is constantly increasing. And what about TV that’s pretty much an essential for the majority of people, if only to be informed of their world. I’m sure the government and business would be very distressed if TV were not available. Transportation both public and private is that included, car prices certainly increase every year I believe?

    5. Steve Perreira

      Dear Tom: Like you, my first thought was, Why use all this old data cherry picked from 10 years ago or so to “show” that inflation is low now, as the gov’t reports. To me, even Jimmy boys’ Chart 1 shows the Gov’t is cheating. He doesn’t think so, no not much, but I bet he wouldn’t be willing to pass on to me the $20 difference in a 1978 $100 bill today, would he? The guy is an A$$.

  2. Vic Volpe

    You tell them Tom. I don’t know where the ‘experts’ are spending their money; but, my expenses for the same items (in the same quantity) sure have gone up substantially.

  3. James Pethokoukis: Yet another rich schmuck who doesn’t buy his own insurance, pay his own bills, buy his own groceries or pump his own gas.

    Newsflash Sparky!

    If you did any of those things YOURSELF, you’d realize that from four years ago, food prices and insurance premiums are up 50%, electricity rates and healthcare costs have nearly doubled in many markets and gasoline and home heating oil have doubled in price. Of course, then you wouldn’t be foolish enough to write such nonsense.

    Real people are making daily decisions on whether to buy food or get prescriptions filled – and not just low income folks. This has spread to the middle class.

    So of course the government “lies” but they “lie” by simply not counting those things which really matter – food and energy, which of course – affect the prices of EVERYTHING ELSE.

    We may not be economic gurus, but us common folk ARE NOT stupid.

    1. It depends on where you live greatly on electric rates. Here they are down from 4 years ago because natural gas is cheaper. Yes they went up from .06 to .09 since 2004 but not in the last 4 years. For Gasoline again you have to go 8 years not 4 unless you regard the period of late 2008 as the proper price, as it was about $4 6 months earlier. Yes it did get down to as low as $1.45 on thanksgiving that year. But that was in the middle of the great collapse, actually prices are about where they were in 2005 right after Katrina.

  4. Wow, congratulations to Mr. Pethokoukis! Does AEI pay its bloggers big bucks, or did he earn his fortune on Jeopardy!?

  5. Yesterday, I purchased a four-pack of 5 ounce cans of tuna fish for $6.59. Two years ago, the same tuna fish price was 10 for $10. When I buy gas, I notice that the price has risen significantly over the past few years.
    My property taxes rise about six percent annually. Prices of cars continue to rise. My health insurance co-pays rose 33-1/3% this year. Even Starbucks raised the price of coffee by 9% in my area.

    Americans spend an average of seven percent on their budget on food. (Poorer Americans spend and average of 15 percent for the luxury of eating.) Transportation accounts for about 16 percent of spending. The rising cost of education is about to create another bubble, many think.

    People I speak with tell note the same price increases. Prices for food and energy.

    It must be that only the items I purchase have rising prices.

    I get a good laugh when I read the inflation statistics the government publishes. Whoever publishes this data has a very good sense of humor.

  6. In my bussiness anything that is mainly a material, that is has not a lot of techie influence , have gone up 3 times or more than the gov’t figures…..a battery 36 months old was up 33% at costco last week…..prices on all that we import from China are up 25 to 50% since 2008…….
    It does seem that the highly manufactured consumer goods are masking the rise of the commodities that underlie them.

  7. Just a small exert from zerohedge. I suggest everyone read it.

    Shortly after Clinton entered the White House the Bureau of Labor Statistics (BLS) altered the calculation of inflation by changing the weighting of goods in the CPI fixed basket. Then, over subsequent years, the method of weighting the underlying components was changed from a straight arithmetic weighting method to geometric. The primary result of the switch to a geometric weighting was a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price which led to lower reported inflation.

    According to John Williams:

    “…the net effect was to reduce reported CPI on an annual, or year-over-year basis, by 2.7% from what it would have been based on the traditional weighting methodology. The results have been dramatic. The compounding effect since the early-1990s has reduced annual cost of living adjustments in social security by more than a third.”

    But the manipulation of the data did not stop there. Aside from the weighting changes the BLS instituted a system of “hedonic” adjustments. Hedonics adjusts the prices of goods for the increased pleasure the consumer derives from them.

    “That new washing machine you bought did not cost you 20% more than it would have cost you last year, because you got an offsetting 20% increase in the pleasure you derive from pushing its new electronic control buttons instead of turning that old noisy dial, according to the BLS.

    When gasoline rises 10 cents per gallon because of a federally mandated gasoline additive, the increased gasoline cost does not contribute to inflation. Instead, the 10 cents is eliminated from the CPI because of the offsetting hedonic thrills the consumer gets from breathing cleaner air. The same principle applies to federally mandated safety features in automobiles. I have not attempted to quantify the effects of questionable quality adjustments to the CPI, but they are substantial.”

    1. So it is essentially a way to cut entitlements (at least Social Security) without having a politically sensitive vote about it.

  8. Totally agree with you tuolie. James; if you don’t think the stats are cooked, by definition Hedonics is a cookfest. As for the MIT study, it is based on online prices which are typically far cheaper than stores (and likely don’t include postage costs). Also, reduced demand in the marketplace is creating deflation at the same time money is losing value. I suggest you do your own shopping instead of your butler. A child can see costs rising everywhere – why can’t you?

  9. 1775Concord

    The inflation measures used are garbage to a senior or low income person/family struggling to get by. Gas prices under Obama essentially doubled ($1.80/3.60…varies) since he took office 4 years ago…and some (more than a little) is his fault. Groceries are up 30-200 percent. Check out such items as milk, Campbell’s soup, toilet paper and paper towels (which have to be carted by truck with increased gas prices). And Obama froze COLA. Disgusting.
    These are the prices that matter…not how a $300,000 house has fallen to $180,000 (yes, it does matter, but the problem is staved off if one lives in the same house and interest rates are for now low).

    1. If you liked the economy when Obama took office then you can have the low gas prices, but go back 6 months earlier an it was up to $4.00 or higher. So you have selective memory, the price reverted to the price after Katrina in 2005.

      1. Chris Darrow

        That spike was extremely short lived do to supply issues with a number of refineries offline. The cost prior to that spike averaged around $1.90 or so.

  10. This is like arguing over minutia when the big gorilla is still around. We’ve added trillions to the money supply yet the CPI hasn’t changed much. Many people think that the statistics are all wet and maybe they are. But what happened to all those trillions? No inflation in the CPI? What about the inflation in stock prices. There you will find trillions of dollars, I suspect, in the rise of prices in the last 4 years. Is not that where the inflation exists. And what happens when people decide stocks are too high-priced? They will start spending that money elsewhere. And the banks holding onto all that cash will finally decide it is time to make money with it, once interest rates are not held down by more printing of money. That’s when the CPI will hit the fan. It has to happen unless the government can find someway of removing all that excess money. Good luck.

    1. I see where you are going with this. Inflation is understated, but compared to the money supply the real fun is just beginning. Once monetary velocity increases we’re screwed.

  11. ken arnold

    Perhaps the author should check his own payments for goods and services over the past four years. Even with energy and food prices exclused from the “core” CPI calculation, try this: (1) electricity bills up 22%, (2) phone charges +32%, (3) cable fees +19%. That is only for utilities. In many retail products, the manufacturers downsized the packagings 10% to 20% and kept prices constant. My medical insurance costs rose 29% over the same period. Then outside the core, gasoline prices are doubled, food prices +40%.

    We deserve a more comprehensive and accurate view of inflation than this highly regarded AEI author provided.

  12. Andrew Allison

    Poppycock! I noticed this week that the price of dried beans had increased from 200% of the level of a couple of years ago to 250%. Meat of all kinds, milk and flour have also more-or-less doubled. Gas prices too remain at historic highs. Such things are apparently above the attention of the Champagne-and-Caviar crowd at AEI!

  13. Ashley King

    Inflation is an increase in the money supply or credit. Its effect is to increase prices, but not in some instantaneous way.

  14. Ron Nelson

    I guess the message is, “If your personal inflation rate is high, you are not responding to price signals and taking advantage of alternative products at lower prices.” Yep, insisting on Haagen Daz isn’t the government’s fault. But energy policy is driving up the cost of my Haagen Daz.

    1. yes you are not responding… you must eat cat food instead of tuna fish that’s an alternative for some seniors or have the choice of buying their meds or buying food. The politicians are clueless and do not state the real inflation rate because it has been over 10% for quite some time now. The trillions of dollars printed will affect this in the future as well. But Seniors are paying the price for it on their fixed incomes so called Adjusted for inflation explain that to them that there money buys less and their utilities cost more

      1. Yes, there is almost no extra spending on anything anymore because the cost of everything you can purchase is higher. It doesn’t matter that the government and its minions continue to spout this nonsense. The buying public knows better and we are not stupid no matter how stupid our government people and their shills are. I’m down to ONE tank of gas a month because I have to buy food. But you’re saying we haven’t had any real inflation? Even with your nonsensical parameters you are STILL either flat out lying or you have gone insane.

  15. Anyone with a mortgaged house should desperately want inflation. The reasons for this are so obvious that it is stunning that people with mortgaged houses actually oppose inflation.

  16. I’m not much for statistics, but I do know that prices for everything are going up at more than just a couple of percent. My best example is single serve bags of Fritos corn chips, about 18ish months ago they were selling four bags for a dollar, then they changed to three for a dollar and now they are two for a dollar. That’s t pretty big jump for a short time.

  17. Public Citizen

    Anyone who has to shop for groceries or put fuel in a vehicle ~knows~ that there is inflation understatement taking place.
    The pump price of gasoline has doubled in the lat four years. Prices have been rising steadily at the grocery store and this spring look out for a big increase in the price of any grain fed animal products, beef, pork, or chicken and also dairy products.
    Since the government has conveniently decided to ignore prices in these areas, which have the greatest impact on the greatest number of people, they do not see much inflation.
    Figures can lie – and liars can figure.

  18. I guess it’s a matter of learned stupidity. I’m told that the difference between stupidity and ignorance is that stupidity is self-imposed. Only a ego can produce such a bastardation of the “facts”. So the question now becomes who’s being “stroked” (this is a psychologist term) and why? FOLLOW THE MONEY! But today’s inflation is nothing compared to what’s on the way. Here in California gas prices alone have increased over 10% in less than a week. I guess “the terrorist” need a few extra dollars to keep the up their dominance over “their peoples” & who’s going to argue. Shell, Exon/Mobil & the rest need those exploited profits if they are going to keep them in the luxury that is so well “deserved”. Meanwhile, we are left to say “Oh, well” & try to bear the pain. Many of us are forced to live on a “fixed income”, this means that if you live in a place where it’s well below freezing you keep your heat at 60 degree or lower just so you can afford your meds (a reasons I’m not there). So, with the choices of life giving medicine or heat, just putting on another sweater isn’t an answer when they turn-off the heat. This is what happened to a family I know in Minnesota while they slept. What a treat for their premi just home from the hospital. Hay, Minnesota nice – real nice. “Let the Northern bastards freeze”, isn’t that what’s said. This is the real reality- If you are poor or disabled in the World you haven’t a chance. “Just pay your taxes & shut your pie hole. We’ll take care of everything.” Seems to be their mantra. Izopnyde

  19. Food prices have gone up under Obama! Damn his malevolent, pinko plot to single handedly cause a national drought and drive food prices through the roof!

    You can complain that the rise in food prices is evidence of inflation, or you return to reality where the weather has an impact on crop yields, crops have a supply and demand curve, and thus lower crop yields drive up prices.

    You may rebut, claiming your “tuna” and other hasn’t been affected by a drought! And you are right. Except that with fewer crops being shipped, grocery freight companies are going to need to charge more per delivery, and in turn increase the price of many of the goods in your local food store. It’s much more complex than this, but hopefully it illustrates a couple trees so that you might be able to see (or at least imagine) the forest surrounding this complicated instance of microeconomics.

    But wait! That’s inflation! True, but it still is relatively low and when ALL consumer products are measured, it only marginally affects total inflation. And it definitely isn’t cause by any policy of any president, past or present. It’s caused by God… and global warming.

    Also, anecdotal evidence of inflation is useless since inflation is something that can ONLY be calculated in the aggregate. Individual instances of increased prices could easily be offset by individual instances of decreased prices elsewhere (we just don’t know!). It is when we combine all of these instances that we can then measure the level of inflation (yay! Now we know, and can index it in something like a consumer price index). So I’m sorry your particular locality is suffering from inflation greater than the national average. You’re SOL, but at least you’re greater than average. :)

    1. You can make all the excuses you want, as to why inflation must be calculated as an aggregate. But Tell that to a senior on a fixed income, and explain to them why the % of the money they spend on food and Utilities have increased steadily and why her medicines have increased 30% over the year before. It does not matter what they say it is they know they have less to spend on Food and essentials, because they live with a real budget, unlike Washington DC they can not print more money and have to live on a budget and not spend more than they take in

    2. I believe everything on the internet and the Communist News Network

  20. William R. Cousert

    No inflation? Have you guys done any grocery shopping lately? Prices are going through the roof.

  21. It doesn’t take a genius to understand if you increase the size of the money pie (say double) you significantly destroy purchasing power. Seriously, a 5 year old knows that if he had had his pie cut into quarters and got one quarter he would have more than if it were cut into eighths. Where do you think this “easing” money goes anyway? I am curious. If we can agree that it doesn’t disappear from the face of the Earth, than you must agree it destroys purchasing power and that the cost of goods and services has to rise.

  22. L.W. Sterritt

    The CPI does not count food and energy. That may have made sense when these were really cyclical. For a number of reasons – depletion of resources, climate change, population pressure, etc, these are unlikely to be cyclical going forward. They will only go up. They should be in the CPI in some form.

  23. you love inflation communist

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