The real impact of inflation: another view

 

Following our reality check about inflation last week, Schiff Gold looks at inflation "on the street", as opposed to government statistics, and finds nothing to cheer about.

Inflation is dead!

At least that’s what you would think if you listen to government officials and talking heads in the financial media.

So, how is this victory over inflation working out for the average person?

Not so great.

Based on official CPI data, price inflation has cooled somewhat, although it remains far above the Federal Reserve’s 2% target. That hasn’t stopped President Biden and most of the mainstream financial media from declaring victory over rising prices. Biden even suggested that companies should start cutting prices since inflation is falling.

It’s important to remember that even if we believe the government numbers and price inflation is cooling, that doesn’t mean consumers are getting any relief.

Prices are not falling. They’re just going up slower than they were six months ago.

And those price increases are cumulative. Since January 2022, prices have risen 9.7% based on the CPI. And the CPI is designed to understate rising prices.

In other words, we’re all still coping with much higher prices no matter what the latest CPI report says. And the suffering is far worse than sterile BLS reports indicate.

This becomes clear when we go out in the real world and stop listening to news people spouting government numbers ... real-life price inflation is far worse than the official numbers indicate.

There's more at the link.

The article goes on to cite the well-known example of inflation from the movie "Home Alone" - read it at the link if you haven't already heard it.  Because it relies on official inflation rates, it obviously underestimates cost increases;  but the numbers for the period 2022-2023 are much closer to the truth.  The article points out:

In 2022, that same basket of groceries would have cost around $44.40 based on a shopping trip by a West Virginia mother. That’s a 123.9% increase. (Keep in mind prices vary somewhat depending on the store and location.)

This year, Kevin would have to fork out a whopping $72.28 for his provisions at a Chicago store. That’s another 62.8% increase in just one year.

62.8% increase in a single year?  What was I saying earlier about a "mere" 30% inflation?  I may have to adjust my estimate . . . Obviously, part of that enormous rise is the difference in prices between West Virginia and Chicago, but that can't begin to account for all of it.  One year, and almost a two-thirds increase in the cost of the goods in question.  Doesn't that make you feel all warm and fuzzy?

Why does the "official" inflation rate differ so much from what you and I experience every day at the supermarket?  For a start, remember that in calculating the core CPI, economists deliberately exclude the cost of fuel and food.  They claim there are good reasons for this;  that by excluding them, they get a better picture of the overall cost of living without the elements that most often exhibit major fluctuations.  I'm sure that's very nice for them.  On the other hand, we poor schlubs in suburbia have to spend our money on what we actually need to keep our families running.  I have yet to encounter any family that doesn't need fuel and food on a daily basis.

As for overall (rather than just core) CPI, economists have a nasty habit of assuming the value of certain things, or assigning a weighting to them, in proportion to what they consider a fair and balanced calculation.  Sadly, their weighting often bears little or no relationship to reality.  You can see the Bureau of Labor Statistic's weighting at this Web page, in the first column headed "Relative importance Oct. 2023".  A few examples:

• "Meats, poultry, fish, and eggs" are weighted at 1.794 out of a total of 100;  in other words, rounding it up, 1.8%.  I defy any non-vegetarian American family to spend only $1.79 on those products, out of every $100 they spend on food every month.  If you're lucky, that will buy less than half a pound of ground beef, or two-thirds of a single chicken breast.
• Motor fuel is weighted at 3.531.  Show me the family that spends only $3.53 out of every $100 of their monthly budget on gasoline for the family car.
• "Medical care services" is weighted at 6.339.  If that's a percentage out of every $100 spent by a family every month . . . see how big a single bottle of aspirin you can buy with that much.  Go on.  We'll wait.

When one cites examples like this, people immediately object, claiming that a "weighting" isn't the same as spending that much in dollars and cents every month.  I (dis)respectfully disagree.  Go read the BLS's spreadsheet for yourselves, and make up your own mind on whether it's even remotely possible that it can produce an accurate reading of consumer inflation.  Compare its numbers to your own monthly expenditure.  It's not pretty.

In so many words, the "official" rate of inflation is a sham, a fake, and a public lie.

Peter