What is the true inflation rate?

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Like a good many other people, I have looked at the "no inflation" reports and compared them to my fuel and food bills and said "What the h**l?" Several posters here recently -- and on several other forums in the past couple of weeks -- have commented on how the CPI is now figured *without* energy and food prices. I've always thought the CPI was based on a "market basket" of goods and services that reflect the typical expenses of an American family. When were energy and food taken out? And if they were put back in, what would the true inflation rate be? Has anyone done the math?

-- Cash (cash@andcarry.com), January 15, 2000


The change in the CPI was made during the Clinton Administration.The decision to remove energy and food costs was essential to preserve the illusion of economic stability, and very little or no inflation. The reason for this decision was sin. The American people are easy to decieve- "it's the economy, stupid"- and we have no inflation, even if a cup of yoghurt at the store is up 20% over last year. (We have 5 kids, inc. 3 teenage boys, and the increasing price of food does not affect our cost of living of course. My husband drives 25 miles to work each way and the price of gasoline does not inflate our budget. There is no inflation, there was no sex with Monica, the economy is doing great...peace, peace cry the prophets.)

-- lynhettler (lynhettler@hotmail.com), January 15, 2000.

Great comments about inflation. Here is another great Link that will shed even more light on the subject.

-- Teague Harper (tharper@cyberhighway.net), January 15, 2000.

There are so many adjustments to the CPI that it has become almost meaningless. The biggest adjustment is for quality improvements. For example, if a PC has a faster processor and more memory, they factor in a quality improvement, which makes the PC appear to have had tremendous price decreases over the past few years. I don't agree with these adjustments since technology is expected to improve over time and these improvements should not be factored into the CPI. These quality improvements are applied to automobiles, medical care, and all sorts of things.

-- Dave (dannco@hotmail.com), January 15, 2000.

Care to repost that link, Teague? It doesn't work...think you chopped off the address somehow. Thanks :-)

-- Tim (pixmo@pixelquest.com), January 15, 2000.

Here is the link again. Sorry for the foul-up.

Is a Bear Lurking Behind the "Goldilocks" Stock Market?

-- Teague Harper (tharper@cyberhighway.net), January 15, 2000.

Here is the same link on another site. Gold Eagle

-- Teague Harper (tharper@cyberhighway.net), January 15, 2000.

To the best of my knowledge the CPI has never included things like Healtcare insurance and auto insurance costs which have risen dramatically over the years.


-- Ray (ray@totacc.com), January 15, 2000.

Egads Ray, if that's true and I wouldn't be surprised if it was, the CPI is nothing more than another political game to manipulate so that Clintoon could say he was responsible for the longest economic expansion in history and therefore require space in the history books.

I can't imagine auto and health insurance as not being a part of the CPI. But I suppose the formula for the CPI is top secret or so complex that the media would never relay it to the public.

-- Guy Daley (guydaley@bwn.net), January 15, 2000.

Bureau of Labor Statistics page on the CPI

-- David L (bumpkin@dnet.net), January 15, 2000.

About a zillion percent seems ballpark to me. It doesn't even matter what the government says if the "savvy" are smiling at 40% returns on their investments. For the rest of us, 12 hour work days, 15% interest on credit cards, and no entertainment budget is becoming the norm. I guess I must be living in the OTHER America.

-- Gia (laureltree7@hotmail.com), January 15, 2000.

I cant believe some of the stuff that people post here! If you dont know anything about economics or CPI or whatever, either find out, shut the hell up, or post your answer as "opinion". Misinformation helps no-one (not you Cash!)


First of all, CPI is an inflation average. Since its based on an average basket of goods, your personal rate of inflation will differ according to how far you differ from the average. So, depending on what you buy, you may face more or less inflation than "the average". It shouldnt be radically different though!

The reason energy was taken out of the CPI was because energy prices are so volatile. Energy prices see big swings back and forth (think about ups and downs in the price of oil). Including this in the CPI measure would create misleading numbers. For example, if energy prices went up drastically in one month and back down the next, the monthly inflation rate would show a big increase and then a big decrease, which isnt very useful -- what was the "real" inflation rate in that period since energy was a one time spike? So taking out volatile prices makes CPI more meaningful. Its not meant to fool anyone, just make CPI more accurate at tracking the rate of inflation in prices.

The change in the CPI is as good a measure of inflation as any out there. Sure, its flawed and it has its problems, but its still around because nothing better is around to replace it. Believe me, if economists could find something more accurate and agree on it, CPI would be replaced. If you're interested in more accurate measures try to find the CPI for your region, state or metropolitan area.

-- not so fast Tonto (holycrap@wtf.com), January 16, 2000.

THE ECONOMIST magazine in England reckons the USA ***TRUE*** rate is

wait for it

wait for it...


Yes that's thirty, three zero per cent!

(Oil has gone up 29% recently...)

-- Andy (2000EOD@prodigy.net), January 16, 2000.

The .gov measures inflation by sending people out to measure the price of selected goods across these great United States. They then magically turn these into a ratio compared to the starting point. If one was either not so sure the .gov's information wasn't doctored or wanted independent verification: Measure your own purchases of the stuff you buy weekly and ask yourself is the Total more or less than last year, last month?

No factor in the price of gasoline? Don't listen to anyone else pro or con, MAKE UP YOUR OWN MIND ON WHAT YOU SEE!

-- Squid (ItsDark@down.here), January 16, 2000.

not so fast- And I suppose food costs should not be figured in because we don't eat every day? Get real! Do you ever compare what you have spent on a month to month basis? A 7th grade math level should tell you something is wrong with what they are saying. The point being that if the CPI does not reflect the true cost of goods and services it is of no practical value, and only serves as a tool of deception. And it does not take an "expert" to figure that out.

-- Gia (laureltree7@hotmail.com), January 16, 2000.

Correctimundo Gia,

old tonto has his head up his horses arse alas,

the 30% figure worked out in England by the Economist takes *ecerything* into account, food, gas, auto/house insurance, mortgae rates, elect, water etc. etc.

tonto you ARE a horses ass come to think of it ! :o)

-- Andy (2000EOD@prodigy.net), January 16, 2000.

Damn, you people are a real bunch! I explained, CPI is not a perfect measure, but you just dont want to hear that. It differs according to where you live and what you buy. Deal with it.

I also explained why energy is omitted from CPI -- because it is volatile. There is a measure of CPI that includes these things. Look it up. The point is that wild swings in energy prices will make CPI meaningless when you look at it as a measure of the trend in inflation. If its jumping around all over the place what good is it when you start comparing numbers to see if there is a trend? Answer: its no good! Of course, if there is a stable, sustained increase in energy prices it makes sense to include it, but there is a version of CPI that includes energy.

Andy, you seem to worship the Economist. Good for you. It appears that you have substituted a magazine published in England (of all places) for rational thought. You can't find an American magazine that does that?

Tell me, what the hell has the Economist ever done? 30% inflation? 30% inflation? when, in January? Last year? That's a joke. Tell me things cost 30% now that they did last month or last year! Not by a country mile Mr. Economist-Lover, not by a country mile. What costs 30% now than it did last year except stocks of Internet companies? I rest my case.

-- not so fast Tonto (wtc@blah.com), January 16, 2000.

How can the price of oil double in the last year and yet we supposedly have only minimal inflation? Oil is the lifeblood of the modern world economy. Most of our transportation and a good part of our electricity generation is powered by oil. Oil is the principal feed stock for plastics. When oil rises, so do natural gas, coal, nuclear, etc.

The government is lying to us, pure and simple.

-- Mr. Adequate (mr@adequate.com), January 16, 2000.

Tont - after what the gubbmint did to the indians you should be ashamed of yourself for defending their lies...

Tell me, what the hell has the Economist ever done? 30% inflation? 30% inflation? when, in January? Last year? That's a joke. Tell me things cost 30% now that they did last month or last year! Not by a country mile Mr. Economist-Lover, not by a country mile. What costs 30% now than it did last year except stocks of Internet companies? I rest my case.


Personally my rent went up, gas went up, food, insurance, airline tickets, taxes, cinema tickets etc. etc. etc.

Are u seriously asking us to believe that inflation in the USA is between 1-3% like the gubmint claims? If you don't believe me you can check out the Economist web-site but you'll have to register first.

-- Andy (2000EOD@prodigy.net), January 16, 2000.

The Consumer Price Index (CPI) is NOT a Cost of Living Index (COLI). It does NOT include the income, propery, sales, and other TAXES that you pay. It does NOT include the cost imposed on you of REGULATION, such as the time and money it costs you to comply with various regulations (smog inspections, replacing your toilets, license fees...). The areas in the COLI not included in the CPI have, and are continuing to increase dramatically.

The writers above are correct in general, if not in detail; when something in the CPI starts increasing too much, it is replaced by something else. For example, housing. In the 1980s, the COST of buying housing was replaced by RENT costs, since rents were not going up as fast as cost to buy. The rationale was, "since people can't afford to BUY, we're gonna substitute RENT". Can't afford to buy -- well, duh! (Point made.) Take the area of food -- steak costs too much, weigh the cost of chicken more. Eating at nice restaurant costs too much, subsitute Jack-in-the-Box's 99c Breakfast Jack.

Another area of CPI manipulation is in the area of "Quality Improvement" and featuritis. Your new car didn't REALLY cost all the that much, the extra dollars you paid were for the quality of all the smog crap hanging off your engine, the air bags, and the cup holders. Never mind that what you (or husband, boy friend) used to be able to do for a few bucks now costs you $100+ for a mechanic to do. Never mind that a headlight used to cost a few buck, now you can pay over $100+ for one of the new improved headlights.

I have CPI data from the late 1970s. When it reached the level of about 300, in the early 1980s, relative to 1967 (1967 base = 100) they revised the base. The new base is prices averaged from 1982-1984. The November 1999 CPI-U (all urban consumers) is 168.3 relative to 1982-1984 and 504.1 relative to 1967.

And I think those numbers, high as they are, are vastly understated, for the reasons I give above. And the COLI is even more. I would say that you need to add a "Truth-in-Government Factor" to whatever they say the CPI increase is, of at least 2% to what they say, or multiply what they say by 1.5, whichever is greater.

-- A (A@AisA.com), January 16, 2000.

A couple of more points. If inflation is and has been under control, why does it take TWO people (or more) in a family to provide a "middle class" living level, as opposed to just one in the 1950s through early 1970s?

A financial rule of thumb is the "rule of 72". You may think a difference of, say, 2% doesn't make a difference. Well, say you have a fixed income (in dollars, never increases) of $10,000. At an inflation rate of 5%, the purchasing VALUE of that $10,000 will decrease to HALF in 72/5 = 14.4 years. At 7%, 72/7 = 10.3 years. As you can see, it makes a difference.

If you checked the link above, you will see a chart of the Dow Jones Industrial average plotted on a semi-logarithmic chart (vertical price axis is semi-log). Semi-log charts are much more instructive when looking at large price/index changes than linear axis charts. Price movements of the same percentage are of magnitude on a log chart, regardless of the level. (A change from 100 to 1000 is the same % as one from 1000 to 10,000).

-- A (A@AisA.com), January 16, 2000.

Regarding the inflation/cost of living:

This is one small example that is probably shared by many.... last Nov the health insurance for hubby and I went up from $511.00 per month to $700.18 per month. This is for an HMO type coverage. $700. is more than I ever paid for a house payment, for christsakes!! And yet, we can't afford to be without it. Prescription drugs are another country-wide gouge that really hurts people who are the most needy.

-- jeanne (jeanne@hurry.now), January 16, 2000.

My thanks to all who posted, especially Andy and Tonto -- your debate was clarifying, even in its vehemence. The bottom line seems to be that both the CPI and COLI are deeply flawed numbers, regularly manipulated for reasons both practical and political.

Tonto, I can understand why energy prices might be omitted, given their current volatility, but why food? And doesn't higher energy cost show up in other items in the market basket through increased cost of materials?

Andy, the 30 percent figure is startling, to say the least, but what time period does it cover? I assumed initially you meant the past year. True? And what aspects of the economy did the Economist use to reach that figure?

Some background to my original question: my wife and I both work and by local standards do well in our chosen professions. We're probably mid-middle class by Connecticut standards, upper middle by local standards, well above our working class parents. Our pay raises have more than exceeded the official inflation rate over the past ten years. Yet by any measure I can devise, we are behind where we were a decade ago. In 1994 we easily carried two car payments in addition to other expenses. This year, we're wondering if we can squeeze another 20,000 miles out of our vehicles in hopes that next year will be better. With only three of us at home -- our other child is away at school -- we still manage to spend $80 to $100 at the supermarket each week. (Our education expenses, BTW, are not part of this argument; they're actually lower now than they were two years ago.) Our last fuel oil fill-up cost $1.05 a gallon, compared to 79 cents a gallon last winter. Health insurance costs have nearly doubled in the past five years. Even my tax guy hiked his fee by $20 this year, a 20 percent increase, to cover his higher costs. Yet every day I get hammered by this "no inflation" message, and the only item in my house I can point to that is equal to or cheaper today than its cost five years ago is the computer I'm writing this on.

OK, I've had my rant for the day. Thanks for listening. And thanks for all the responses.

-- Cash (cash@andcarry.com), January 16, 2000.

Just one additional point. While it is correct that short term fluctuations in oil prices may skew the data for .gov inflation data; 1. Couldn't the .gov smooth the data with a rolling average, 2. If oil is such a non event what happened in 1970's?????? Would one say that oil wasn't a factor?????

-- Squid (ItsDark@down.here), January 16, 2000.

Food and fuel prices are still included in the official Consumer Price Index. The figures are also released, however, not including food and fuel for those that want to look at the figures that way as well.

http://www.abcnews.go.com/sections/business/DailyNews/economy000114.ht ml

[Fair Use: For Educational/Research Purposes Only]

Consumer Prices Up for 99

Core Inflation Rate Lowest Since 1965; Industrial Production Meets Expectations

By Jeannine Aversa

The Associated Press

W A S H I N G T O N, Jan. 14.  A big jump in energy prices helped push consumer inflation up 2.7 percent in 1999, the biggest increase in three years. But prices were relatively contained in most other areas, posting the best performance since the mid-1960s.

Outside of energy and food, the core rate of inflation rose just 1.9 percent last year, the smallest annual increase since a 1.5 percent rise in 1965, the Labor Department said today.

Lasts year core rate was even better than a 2.4 percent increase in 1998 and suggests that inflation remains under control.

For December, the Consumer Price Index, the most closely watched inflation gauge, was up 0.2 percent, less than many analysts were forecasting. The December advance came from a leap in gasoline and other energy prices.


The 2.7 percent advance in last years consumer prices was the largest annual gain since a 3.3 percent rise in 1996. It reflected a 13.4 percent increase in energy costs, which had fallen sharply in 1998 as the Asian financial crisis severely dampened global demand.


Modest Increases in December

The advance in Decembers overall consumer prices reflected a 1.4 percent rise in energy prices, boosting the total increase for the year to 13.4 percent, the largest annual gain since an 18.1 percent increase in 1990.

Gasoline prices rose 4.1 percent last month. That pushed the total increase for 1999 to 30.1 percent, the highest since a 36.8 percent increase in 1991.

Food prices, meanwhile, rose a tiny 0.1 percent in December and 1.9 percent for all of last year. Rising prices for beef, pork and vegetables in December offset falling prices for poultry and dairy products.

Outside energy and food, the core rate of inflation rose a scant 0.1 percent in December, reflecting a smaller increase in shelter costs. This was lower than most analysts expected.

The small, 1.9 percent advance in the core inflation rate for all of 1999 stemmed from moderating prices for shelter, tobacco and other smoking products.

Shelter costs rose just 0.2 percent in December and 2.5 percent in 1999, the smallest annual increase since a 2.4 percent gain in 1982.

Copyright 2000 The Associated Press. All rights reserved.


-- Linkmeister (link@librarian.edu), January 16, 2000.

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