What do you think is the true "inflation" rate?

[kentuck]

I believe they officially reported it as between 2 and 3 percent? However, I am inclined to believe it is much higher? I know they supposedy measure it by a basket of groceries, but isn't that method really outdated?

For example, if you are an average lower wage earner making $10.00 per hour and you get a 5% raise, your salary has been increased by $20.00 per week. If your food prices go up by the reported 2.5% inflation, that means half of your raise has gone to inflation. That would leave you $10.00 a week extra with your pay raise.

If gasoline prices double and you now put in 20.00 worth of gas per week, when you used to only put in 10.00 per week, your entire raise of 5% is now gone. Suppose your electrical bill goes up by $50 per month? Suppose your rent goes up by $50 dollars per month? Suppose everything else around you goes up in price? What would be the real inflation rate?

[sendero]

1. I wish I had a link..

... but a gentleman who studies government statistics claims it is running about double the official CPI, at about 6-7%. The number are fudged in a very simple way, elements that make up the CPI are "weighted" and the weightings for things rising in price are lowered while the weightings for things remaining stable in price are raised.

Noboby who buys groceries and can remember what they were paying a year ago thinks inflation is running at 3%.

[unblock]

7. 6-7% is spot on, imho.

the thing is, 6-7% is not stable, in the sense that WERE IT WIDELY UNDERSTOOD that the current inflation rate was 6-7%, then everyone would start panicking about inflation, and it would spiral out of control as workers clamor for cost of living adjustments and merchants raise prices to keep up with suppliers, etc.

the (evil) genius in lying about government statistics is that (at least for a while) it enables us to have high but stable inflation. people think inflation is running 2-3%, so there's no panick.

actually, it works very much lilke a "bubble" in the tulip bulb, stock market, or real estate market sense. the fact is that many people actually DO know that we have a real inflation problem. it doesn't take genius to know that oil at $70+/bbl is an inflationary problem. but everyone looks at the false statistics and tells themselves, as long as the market continues to "ignore" inflation, then it's not actually a problem. very much the same way real estate prices could continue to rise beyond all fundamentals. as long as everyone else ignores the fundamentals, the bubble continues to grow and no one gets burned.

eventually, of course, the "we have no inflation" bubble will burst and all hell will break loose. this is the sort of thing that leads to a MASSIVE currency devaluation in other countries, it will be interesting to see what happens here....

[skids]

9. see #8 n/t

[nadinbrzezinski]

13. Per month, you are right on hte money

that places it at oh... add a zero to the official rate, to place it at 20 to 30 percent

[MADem]

2. The basket of groceries is outdated for many reasons

It worked when most people, on a daily basis, BOUGHT food mostly at the grocery to eat. Nowadays, people who would, in days past, be opening cans of soup and eating bologna sandwiches if they were poor cooks, instead go out to fast food restaurants regularly. Some people, single, married, families, NEVER eat food prepared at home, because they are too busy to cook or don't want to chop and prepare and stir. It's Chinese one night, pizza the next, burgers third...and so on. And many people who do shop at "grocery stores" buy stuff that isn't really "groceries." It's premade food that needs heating.

I can remember as a kid that "dining out" was a big deal. It isn't anymore.

Also, they don't factor in things like gas or other energy prices into their calculations.

The chunk of the salary that used to go to groceries isn't going there anymore. It's going to take out and fast food restaurants, and your sit-down quickies like Chilis and Outback.

[izzie]

10. Is that really true that the poor go out and eat ?

Heck I am living on a fixed income in retirement and stop and eat out once a month and get a drink at one of those places about 2 more times a months when I food shop. I have to cook from raw stuff just about every thing I buy at the market. The one thing I can be sure to buy is garlic bread all made up if and I say if it is on the day old counter. It is a silly price if you just buy it. All food is up and a lot. I would say the dollar item is now 1.25 to 1.35 from what I was paying last year. Coffee was way up last time I got it. Hardly any one in this family go out and eat, but a daughter when she is working. She is also not poor.I am not sure that is really true about eating out if you are poor.

[MADem]

11. No, not the poor, I am talking about one or two working adults

...with or without kids, who work long hours, kids have soccer and so on...they either call Pizza Hut or Chinese or swing by the burger joint or Boston Market or what have you.

The issues are TIME and convenience that push them towards this answer to feeding themselves.

They might not be rich, and they might even be struggling to make ends meet, but that's a frequent solution to "the dinner hour."

The CPI isn't just a measure for poor people. It encompasses all income levels.

People who are living on a retirement income that is meager aren't gonna do this kind of thing. Retirees with a decent pension in addition to SS, OTOH, like some of my friends in FL and AZ, have a regular schedule going and hit the Early Bird Specials and Two for Ones at assorted restaurants every day of the week. They can go for weeks before they cycle around to the same restaurants. For them, it's convenience, something to do, easier than cooking, they don't have to clean up afterwards, they get out, and they simply like it.

ON EDIT--I think you misconstrued my meaning in the first place. When I said POOR COOKS in my post above, I meant LOUSY COOKS, not cooks with thin wallets.

[izzie]

18. OK I see what you mean. I will say this and how do you figure it ?

I live out side a very small city almost a large town and every kind of eating places that is listed on the stock market is in town. Some times two like Subway. I can only think of five local places and one is new as they go out of business fast. This town is more of less what it has always been a mill town not known for its high income. Who is keeping all those places going? It can be the 'bad' cooks but not if they are just poor and 'bad' cooks. All this, because my minor in college was sociology. One wonders why I waste my time even thinking about it. So be it, as I do.

[MADem]

19. Are there businesses nearby?

The lunch trade can keep a place afloat alone, if there are enough customers on a daily basis. Any place that has a liquor license often makes more from the booze than the food (there are more than a few TGIFs that stay afloat that way).

[izzie]

21. Well the places that are on the stock market do not sell drinks

but I think you could still call this city of say 20,000 a mill type town. The other eating places sell drinks. Eating out used to be a big thing for people and I think it is more so now than what it was. On a fixed income one does not do it a lot but it also fits in with it being a special thing as I grew up. Younger people maybe do it a bit more than people from my age group. But when I go into a place it does seem to be filled up with old people so who knows. Still hard to believe if you are poor you can go out to eat very much. Maybe it is something they just fit into their budget and it helps them to be poor? I used to watch people on food stamps buy some odd things where I cooked every thing from raw stuff. Had to I have a lot of kids. And I made sure they ate right.

[MADem]

22. Some of those early bird specials are cheap

And some places have 'senior menus' that have smaller portion sizes. Also, the two for one menu items are a good buy.

The careful senior can spend less, or about the same amount, eating out than cooking at home, IF they rely on early bird specials, coupons, twofers, and don't order drinks (a glass of water comes with the meal, a coke is an extra buck or more) or extraneous side dishes. You've also got to factor in gas or electricity to cook, and, if you are living in a hot climate, you then have to crank up the a/c to dispel the heat.

[izzie]

25. I guess you can figure it that way but some how the market basket

scale of figuring this is nuts still. Look at how they use it under SS. I get a percent raise when all this goes up. Like the man who gets more because he starts with more is paying more for his bread. That part should be a flat COLA for the raise every year. And do I understand they took out gas from the cost to live clock and they do not use that figure any more? What can that mean? Maybe they should add one meal-out per family a week. Where can one find what they do use on the chart any how? I have never been able to find the list only that it has done this or that. Then I read once they took off gas and that is when I started hunting for the list and could not find it.

[Double T]

3. Somewhere in the double digits, 10+%

[kentuck]

4. It seems to me to be as bad or worse than during Carter years...

Just the way it seems??

[seemunkee]

5. Maybe this will help answer your question

Despite having a father and several friends that are economists I still don't quite grasp it all. The change from actual home ownership costs to renters equivalent has made the reported inflation rate look lower

http://themessthatgreenspanmade.blogspot.com/2005/10/home-ownership-costs-and-core.html

[mnhtnbb]

17. Yes, this is a manipulation to make inflation look lower

There is an Austrian economist, Dr. Kurt Richebacher, who is writing about this.

"Effectively the cpi contains two rent components: rent of primary residence (actual tenants'rent) and owners' equivalent rent of primary housing (fictive rent for owner-occupied housing). Accounting together for 28.4% of the cpi, they clearly weigh heavily in its calculation, to which owner-occupied housing contributes 82%. Last year, it went with an increase by 2.2% into the overall cpi, which rose 3.3%"

In short, soaring homeownership, depressing rents for housing, leads to the unusually slow rise in housing costs in the cpi.


The BLS abandoned its "asset price method" in Jan 1983 to measure changes in the costs of owner-occupied housing.

The best of Kurt Richebacher archives

http://www.investmentrarities.com/archives.html

[SmokingJacket]

6. I thought they didn't include food in the inflation rate.

My theory is that the rate is weighted too heavily on Chinese-made consumer goods, which are, indeed, quite cheap and even going down in price. Yes, if you want to buy a toaster, a tee-shirt, a dust-mop, and a plastic chair, you won't have to may much more than you did ten years ago. Maybe even less.

But if you *only* measure necessities -- food, fuel, medicine, and rent -- I believe the rate is much higher. It's hard to pinpoint because I wouldn't know how to weight things. Medicine has gone up more than anything, but lots of people buy no medicine at all.

[Nay]

14. They DO include food, but have a sneaky-ass way of doing it --

They start out at the beginning of the fiscal period and record the prices of that basket full of groceries -- meat, bread, milk, whatever. That sounds fairly reasonable, right?

However, if, say, that steak in the basket has all of a sudden increases a lot in price in the next month, THEY REMOVE THE STEAK from the basket and SUBSTITUTE something cheaper -- like 20%fat hamburger -- and voila, inflation has not risen.

Their rationale for this? "Oh, if Mrs. Housewife sees steak go up that much, she will buy hamburger instead, and we are just doing what Mrs. Housewife would do, that's all!"

Of course, in 2 years when "Mrs. Housewife" is buying gruel, dented cans of veggies and moldy bread because that inflation that wasn't happening has destroyed her budget, well, I'm sure they'll have another explanation for what's going on.

[MADem]

20. Happy Thanksgiving!!! Gruel, dented cans of veggies and moldy bread

Right on the mark!!!!

[skids]

8. shadowstats.com

http://www.shadowstats.com

These days, by the way, if you think the stock market numbers you see on the news mean anything at all, you are seriously mistaken. The dollar is vascillating so much that most stock market "rallies" and "crashes" can be mostly attributed to adjustments to correct for inflation.

[JHB]

12. Another relevant chart from ShadowStats.com

Red is the official CPI, blue the site's alternate CPI

[pscot]

15. Gotta belive that 10% is more like it.

Look at the basics. Over twenty years hamburger meat has gone from 69 cents to $2.19. Same with a loaf of whole wheat bread. Campbell soup from $.29 to over a buck. Fresh veggies used to run $.39 to $.69 a pound. Now everything's $1.49 and up. Gasoline has quadrupled. Two people used to be able to go to the ball park, sit outside 3rd base and drink a beer and eat a hotdog for $24. Same seats now cost $96. Paperback books used to cost$1.25. Now you pay $5.00, or maybe $6.00. It's true that most mass market manufactured goods haven't risen as fast, but you don't buy that suff every day, or even every year. I think they're cooking the numbers in order to lull us to sleep.

[kentuck]

16. By using the example in the OP...

for a low wage earner, food has gone up 2.5% and gas has gone up 2.5% - that is 5% inflation right there? If heat, water, and electricity have gone up another $40.00 per month for this same person, that would be another 5% increase in inflation right there. And that would be a total of 10% inflation, just on those conservative numbers. That would not include everything else. I think it would be safe to say that the present inflation rate is somewhere over 10%.

[Hubert Flottz]

23. How much less do your dollars buy at the store than they did in

2000? How much less do they buy at the gas station. How many more of your dollars are spent on heating and cooling your house? How much more does it cost to send your kids to school for a year now? How much have your state and local taxes gone up? How much more money do you bring home today than you did in 2000. Has your company pension been declared void and bankrupt? Are you paying more for hospitalization, life, homeowner's and auto insurance now, than you were in 2000?

How many more dollars does it take for you to get by NOW than it did 6 years ago? Are you able to save as much money each month now, as you were before Bush took over? When your dollars lose more and more of their value, what is that called? Are you better off now, than you were 6 years ago?

[roamer65]

24. Around 8 percent

But never fear, it will get much worse as the Fed is forced to reduce the interest rates in order to try to stop a recession. With no interest rate incentive, the exodus out of the dollar will go like gangbusters now.

[Cobalt-60]

26. 20 per cent

I commute to work. There are no replacement jobs available at home.
Gasoline as torn the bottom out of my budget since it went over 2.00.
Every time I go to the store staples are more expensive.
My best guess is an effective twenty per cent.