Your government in Washington lies to you about inflation

Have you noticed how the government published inflation numbers (consumer prices index, CPI) shows very low inflation while your personal experience is a very different one – namely that prices go up and up all over the place? What is the reason?

The CPI is calculated excluding food and energy. Coincidentally these two things are driving up everything in my very own life. What would the real inflation rate be if you add back everything the government takes out?

This is the work of the Bureau of Labor Statistics (BLS). The BLS has been working to portray the U.S. economy as strong and inflation free. They manipulated the CPI inflation numbers in various ways.

By contrast, in European countries inflation is calculated including food and energy. Since energy has become more expensive worldwide, the USA’s CPI falsely shows a lower inflation rate than the Euro zone.

The BLS itself describes it as:
"Effective with the calculation of the seasonal factors for 1990, the Bureau of Labor Statistics has used an enhanced seasonal adjustment procedure called Intervention Analysis Seasonal Adjustment for some CPI series."

When and why did the government decide to change the formula for inflation?

In the early 90’s during the Clinton era the government in Washington realized it had a problem with rising costs for Social Security, Medicare, and government pensions. The amount of these payments was set up to match the annual inflation rate and they could not afford to have them rise with the rising cost of food and energy. Of course the government could’ve tried to bring the inflation rates down instead of rising social security payments. But instead of actually changing import tariffs, subsidies, taxation or interest rates they chose the way of statistical manipulation. By simply redefining the meaning of inflation they lowered the numbers and thus avoided high payments.

Besides the CPI there are other indexes to watch e.g. the chain-weighted price index for personal consumption expenditures (PCE) and the Wholesale Price Index (WPI).

Oh and finally, what is driving inflation? Oil prices are a big part of the story, but not all of it. Other commodity prices are also rising. For the USA, the Dollar’s loss of value against the Euro will show effects in the near future.

If you want to see the government's inflation, you may use their calculator:
http://data.bls.gov/cgi-bin/cpicalc.pl