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By Volcker Measures Inflation Near 10%

From CNBC:

Inflation Actually Near 10% Using Older Measure

John Melloy, Executive Producer, Fast Money
Tuesday, 12 Apr 2011

After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.

Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.

Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products, improvements in quality (i.e. iPad 2 costing the same as original iPad) and other things. Backing out more methods implemented in 1990 by the BLS still puts inflation at a 5.5 percent rate and getting worse, according to the calculations by the newsletter’s web site, Shadowstats.com

Investors are anxiously awaiting the release of March’s CPI reading on Friday. The consensus estimate from economists is for an annual inflation rate of 2.6 percent.

“Given ongoing inflation problems with food and the spreading impact of higher oil-related costs in the broad economy, reporting risk is to the upside of consensus expectation,” said Williams, citing a 10 percent jump in gasoline prices in March, in the note.

“While the federal government would have us believe the numbers are rather tame, our own personal gauge leads us to believe inflation is running between 5 percent to 6 percent annually,” wrote Alan Newman in his latest Crosscurrents newsletter that refers to Williams’ statistics.

Newman uses recent comments from Walmart CEO Bill Simon that inflation is going to be “serious” to back up the much higher CPI figures from him and Williams.

To be sure, the BLS argues that the changes it has made over the last three decades more accurately reflect a true change in the cost of living. For example, in response to its hedonic adjustments, the BLS web site states, “to measure price change accurately, the CPI must be able to distinguish the portion of price change due to this quality change.

Still, going by recent strong comments from Federal Reserve officials, even members of the central bank must believe inflation is being underreported. Dallas Federal Reserve President Richard Fisher said in a speech last week that the central bank was reaching a “tipping point” as far as changing its policy so it can react to inflation

Apparently the Shadow Government Statistics site has a bit of a cult following among some economists. In any case, who can doubt that real life inflation is far more than what is being reported now? Or that it is even greater than the "consensus estimate" of 2.6% annually? Don’t these establishment economists buy gasoline or groceries?

But underreporting inflation saves the government untold billions in cost of living increases, and probably in many other ways. So the lies will continue. — ‘Let them eat iPads!’

This article was posted by Steve on Wednesday, April 13th, 2011. Comments are currently closed.

4 Responses to “By Volcker Measures Inflation Near 10%”

  1. BigOil says:

    Welcome back to the stagflation we enjoyed under the peanut farmer. It should be even better this time around, with a mountain of new debt thrown in for good measure.

    This transformation 63 million people voted for is going to be very painful.

  2. proreason says:

    If any Republican candidate is serious, we will see an add like:

    Price of gasoline when Obamy took office: $1.90………Price of gasoline now: $4.30
    Price of 3 cartons of groceries when Obamy took office: $30…..price now: $50
    Full-time employed people when Obamy took office: 160M……employed people today: 140M
    Government workers when Obamy took office: 20M….government workers today: 22M
    Accumulated savings of non-Wall Streeters when Obamy took office: 2T….today: 1T
    Interest a retired person can earn today on his or her savings: 0%
    Times wagu beef has been served to Obamy: 200
    Vacation days for Obamy: 200
    Wars Obamy is running today: 3

    The ads write themselves.

  3. RabidAmerican says:

    Actually, the price of gasoline is still the $1.79 per gallon it was January 2009. It’s really just that you now have to use $4.00 face-value to buy that $1.79 gallon. Why? Ummmmmmm, ask the Fed–it’s called inflation, er, ‘quantitative easing.’

    Keep those printing presses humming! BTW, the Fed makes real money as it ‘buys’ excessive government spending (debt).

    Inflation=the most insidious form of taxation ever devised. Do the math and see how much more you’re voluntarily paying in taxes.

  4. preparing4theworst says:

    “reporting risk is to the upside of consensus expectation”…just one question…WHAT IN HELL HE JUST SAY???
    Couldn’t he just say that “financially the US government has just well and truely screwed the pooch and will henceforth be trying to find someone else to blame” or is that too clear and understandable?…Say what you may about Bill O’Reilly, when he asks a politician or other government lackey a yes or no question he does try to hold them to a yes or no answer…though not always with success

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