Am I the Only One Who Thinks the Published Inflation Rate is Bogus?

As you can guess from the title, I think that the published inflation rate is bogus. Completely. Let me explain. Over the weekend I was going through some old files and boxes, trying to cut down on some of the clutter that I’ve collected over the years. One of the more interesting tidbits I came across was an invoice from the post office for my post office box back in 2011. The invoice was for $15 for a six-month rental.

This was interesting because I just got a renewal notice this month. The renewal rate? $21. Some quick math shows that the three-year increase in the rental comes to a $6 in just three years. That’s a 40% increase in the rate, or about 13% per year.

Am I the Only One Who Thinks the Published Inflation Rate is Bogus?
Am I the Only One Who Thinks the Published Inflation Rate is Bogus?
This isn’t the only evidence from the US Postal System confirming that the published inflation rate is way understated. The price of first-class postage stamp was $.33 in 2000, and it now sits at $.49. That’s roughly a 50% increase overall, and it works out to be just about 3% per year. In fact, in January of this year, the post office increased the stamp price from $.46 to $.49, which works out to be a 6% increase in just one year.

Optimists will attribute the above average increase in postal rates to agency mismanagement. And while there is some truth to that claim, the USPS is hardly alone in increasing prices at rates well above the published rate of inflation.

Lies, Damned Lies and Statistics – Proof the Published Rate of Inflation is Bogus

According to the Bureau of Labor Statistics (BLS), the official rate of inflation is just 1.7% for the most recent 12 month period. In fact, the BLS has been maintaining that inflation has been running at between 1% and 2% for the past 15 years at least. Though it’s hard to assemble the statistics, I think most of us realize that the official rate is virtually bogus.

My guess is that inflation is been running something closer to 5% over the past few years. We can clearly see the outsized increases in common necessary expenditures, such as health care and education. And the BLS routinely excludes the “volatile food and energy sectors” from its official numbers, lest they skew the CPI in an undesirable direction. We can suppose that no one at the BLS consumes food and energy on a regular basis, and thus feels comfortable excluding it.

The BLS also reports that prices in 2014 are about 238% higher than what they were in the 1982-1984 period. But just for comparison sake, I bought a brand new Ford Mustang in 1984 for just about exactly $10,000. Today, that same car would be in the $35-$40,000 range, an increase of 350% to 400%. That’s pretty much the situation with cars in general.

But I think that most of us have seen rising prices in other areas as well. Property taxes have gone up at a rate that certainly exceeds inflation. And most of us have seen our utility bills creep up gradually but relentlessly – and well ahead of the published rate of inflation.

With all of these increases in common expenses, how does the BLS arrive at such a ridiculously low rate of inflation?

Hint: It’s not an accident.

The Motivation Behind an Artificially Low Inflation Rate

The Consumer Price Index (CPI) is the index that the government uses to measure inflation. They have various ways to minimize the index, and thus to keep it artificially low. They have plenty of reasons for wanting to do that. Here is just a sample of those reasons:

  • Inflation indexing of income taxes – Since the Reagan years, federal income tax brackets have been indexed to inflation, as have the standard deduction, personal exemptions, and various tax deductions, such as tax-deductible mileage. A low rate of inflation means that changes in the indexing will be minimal, which maximizes the amount of income tax revenue the government collects.
  • Social Security cost of living adjustments – Each year the Social Security Administration adjusts benefit payments for inflation. A lower CPI means smaller benefit increases, and that saves the government money.
  • Interest rates – The US government is the world biggest debtor, with more than $17 trillion in public debt. Since interest rates are closely tied to inflation, a low inflation rate means lower interest rates, and that lowers the government’s cost of borrowing money. In a real way, we can say that an artificially low CPI supports deficit spending.

When you realize the amount of money that is at stake in each of these budget issues, you can easily appreciate why the government wants to keep the CPI as low as possible. But they are not alone either. Big business has a vested interest in a low CPI as well. Salary increases are closely tied to the CPI. Meanwhile, the perception of low-inflation is a major plus for the stock market, which loves price stability. Higher inflation means higher interest rates, and that’s bad for stocks. Big business will not challenge an artificially low CPI.

About the only group in society that does not benefit from an artificially low CPI is the average citizen. We’re limited to salary, tax bracket and Social Security increases that are restrained by the suppressed inflation rate, while being fully exposed to the higher prices that the true rate of inflation brings.

Moral of the Story: The Hallowed CPI Is Meaningless For the Average Person

I consider the perpetually artificially low CPI number to be one of the biggest scandals in America today. It is one of the major reasons why the life is being sucked out of middle-class America. We’re slowly getting poorer, while big business and the officialdom proclaim progress against inflation, and a win for national stability.

Unfortunately, there’s not much we can do about it. The CPI is one of the basic conventions of American life. Like air, water, and the Federal Reserve, we assume that it’s a natural part of life, and we don’t question it.

But this is one of those issues in life where ignorance will not improve our circumstances. No matter how pretty the official inflation numbers may be, we’re still stuck paying higher prices for everything.

That’s our reality, but there are a few things we can do about it.

What We’re Doing to Deal With the Inflation That Doesn’t Officially Exist

Being fully aware of what’s really going on with price levels, and accepting the fact that it won’t change, we’re making constant adjustments in our household.

There are two basic ways to deal with rising prices:

  1. Cut or eliminate expenses, and
  2. Earn more money

Here’s what we’re doing to cut expenses in my family:

Reduce housing expense – As renters, we have the flexibility to move as the need arises. Nearly two years ago we made a move to get our daughter into a different high school. Along with that move, my wife and I determined that we would also lower our monthly rent payment – and that’s exactly what we did. We chopped $170 a month, or about $2,000 per year, off our rent. And we’re even living in a better house!

Paying (a lot) less for car repairs – Over the years I’ve become quite adept at getting our cars repaired without using repair shops. In my experience, repair shops are something close to a complete rip off. By learning to make simple repairs yourself, using the services of a backyard mechanic, and buying your own replacement parts, you can literally chop your car repair bills in half or less. That can save you a couple thousand dollars a year if you have two or more cars.

Canceling or reducing utility expenses – We recently got rid of a landline phone, saving is about $36 per month. We’re also seriously considering getting a Clear TV antenna to get access to the major networks – in addition to our existing subscription to Netflix – then getting rid of our cable altogether. That’ll save at least $60 a month.

Changing our grocery spending – We’ve learned to simply do without certain products if the price becomes prohibitive. Beef is an excellent example. Due to the heavy use of corn in the production of ethanol, beef prices have exploded. Our response is to buy little or no beef. Instead we’re buying more chicken, pork, and frozen fish, and buying them on sale. We’re also now doing most of our shopping at ALDI. We moved slowly on this at first, but now it’s our primary store. We’ve probably cut our food bill by at least 15% with this move alone.

Here’s what we’re doing to earn more money:

Expanding my freelance blog writing business – One of the advantages to having your own business is that you can expand that business as circumstances require. As a freelance blog writer I’m able to increase my writing assignments to bring in additional income.

Working a side job – I’m kind of backward on this; most people have a full-time job with a side business. I have a full-time business with a side job. And for what it’s worth, I’ve always found that side jobs work better with small businesses. The job brings an additional income, and expands my repertoire of transferable skills. It’s something I’ve learned from being self-employed, that you have to constantly be looking for additional income sources. And it really comes in handy in dealing with the inflation problem.

Sent our kids to work – This was less of a strategy than a natural evolution. Once kids reach a certain age, they need to get jobs. We don’t make them contribute to the household (yet), but just the fact that they are paying their own expenses gives us a lot more budget flexibility. In a world of perpetually rising prices, every one in the household who can do so needs to bring in an income.

Sell stuff to raise additional money – There’s very little that we have that we throw out. When we no longer need something, we sell it on Craigslist. You’ll usually get more for it than you think. We also hold a couple of garage sales each year. None of that brings in a flood of money, but a few hundred dollars from selling what you would have trashed is like found money.

That’s what we’re doing to cope with the bogus “no inflation” fiasco. What can you suggest?

( Photo by Paolo Camera )

8 Responses to Am I the Only One Who Thinks the Published Inflation Rate is Bogus?

  1. Hi Kevin, You are spot on about the inflation rate being basically fictitious. Except for the very recent (last 2 months) decline in gasoline prices, everything has gone up tremendously. Whether it is prescription drugs or hamburger, nearly everything I buy costs substantially more. The government, in my humble opinion, deliberately puts out false statistics because if people really took the time to analyze prices, there would {should} be an uprising. And the government has to keep the numbers down because it simply can’t sustain a high Social Security benefit increase. BTW, did you know that the pensions of retired federal employees are also tied to the same index? So it keeps their pension adjustments down as well. Huge savings. And as you know, it keeps interest rates low because the government couldn’t possibly afford to pay higher interest on its’ debt. It’s just one big façade.

  2. Hi Kathy – Yes, I did know about federal pensions. It goes to show how big an issue this really is. The inflation fiasco is like a silent killer that’s draining the middle class, even as most of us can’t identify the real cause.

    I often hear people – when talking about the nations ills – make comments like, “they just need to close the borders”, or “they need to stop all this foreign aid”, as though there are simple solutions to deep problems. I’m convinced that most people don’t understand that our problems are so much bigger than that, and that they’re all connected. The powers that be want us talking and fretting about immigration and foreign aid (and other relatively minor issues) because they can be made into political capital. But inflation is largely what’s paying the bills on a national scale, and hardly anyone talks about it because it’s completely misreported.

    Meanwhile a lot of good people are thinking there’s something wrong with them because they can’t keep up. But what they don’t understand is that they can’t keep up because the system is rigged against them. After all, how do you deal with a 5% general price rise with a 2% increase in income – year after year? And we wonder why we’re all so stressed! We’re dealing with a demon we can’t see or even explain, and no one at the top will even talk intelligently about it.

  3. You are spot on in claiming that the published numbers are bogus. The government has changed the definition of inflation to exclude the most important part of people’s lives – food and energy. Our food bill has gone off the roof over the years, and apparently we have no inflation! Thats total BS.

    The real inflation rate is much higher than the published rate. Of course, the painted picture is different and gives them the green signal to do whatever the hell they want.

    Great writeup.
    R2R

  4. Thanks! What a lot of people aren’t aware of (because it’s so technical) is that the CPI has been watered down with substitutions that almost always make it lower than what it really is. For example, it uses rents rather than actual owner costs to figure the housing component with the rationalization that it’s more consistent. So the average cost of owning a house could go up 6%, but they’ll use a 3% increase in residential rents instead.

  5. I’ve given up trying to understand the economy or how people make money from it. I’ve put all I can into precious metals that aren’t taxed or regulated. They don’t even know I got it! I own little of anything else and owe nothing.
    I guess I could get robbed, but I don’t let anyone know about it and don’t keep it all in one spot.I sharer costs with others and use all the public services I can without having to identify myself. The bus system and libraries are great deals. Lots of free meals too.
    I think of the government as a legal form of the Mafia – do as they say or else! With no land or car or other forms of big bucks, they can’t see me very well, and they figure I’m too small to worry about when they do. In fact I can qualify for lots of handouts if I would take them and will be eligible for more when I “retire” in two years.

  6. Hi Ric – What you’re describing is “living under the radar”. Can’t say I blame you. I suspect more people are doing it all the time. You see all these people who have given up looking for work and basically fall out of the job market – but somehow they survive. I’m speculating that they’re working under the table, they have cash only businesses, they’re bartering, or they’ve found some way to forage for a living. Many of them have moved in with someone else and are finding ways to survive that are very close to the ground. We don’t have the Hoovervilles of the 1930s, but we do seem to have armies of people who have officially disappeared, for all intents and purposes.

    I’m always amazed when I think about how my grandparents lived and thrived even though they had very little money. They always worked, always saved money, always had money, never went into debt, and lived pretty basic lives. They could fix things, grow their own food and make their own fun. No pensions, no 401k’s, no six or seven figure investment portfolios. But somehow they did it. I wonder if we’re not going back to that? It is doable. It sounds like you’re proving that.

  7. The Consumer Price Index (CPI) isn’t bogus. It doesn’t measure everything, but no statistic ever could, so there will always be complaints no matter how they determine what makes up the calculation.

    A news release from two ago mentions that the 12 months leading up to September shows the CPI increased 1.7%. Food at home went up more: 3%. Piped utility gas went up even more: 5.8%. But other things went down, such as all types of gasoline: -3.6%.

    Here is a detailed report of everything they measure current and by how much it recently changed: http://www.bls.gov/cpi/cpid1409.pdf. They do show “meats, poultry, fish and eggs” going up 9.4%, yet “personal computers and peripheral equipment” going down 8%. There is even a relative importance to each (personal computers is .306 versus the meat fish and eggs at 1.859) since we certain things more than others.

    The BLS doesn’t say that inflation has been between one and two percent for 15 years; look at table 24 of the document above. Starting in 1999 through 2013 it has been 2.2%, 3.4%, 2.8%, 1.6%, 2.3%, 2.7%, 3.4%, 3.2%, 2.8%, 3.8%, -0.4%, 1.6%, 3.2%, 2.1%, 1.5%. This is overall, of course some things went up faster during this time.

  8. Hi Stephen – Thanks for the stats. But I think there’s a big difference between looking at a set of organized statistics – that look totally credible based on the framework of the presentation – and dealing with the cost of living on a day-to-day basis. There is a disconnect between the CPI and what it actually costs people to maintain their lifestyles. I think that buying less, but still paying more is a common experience, and largely explains the shrinking middle class. The BLS has statistics, and we don’t, but we have real life experience that trumps those statistics.

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