Agoracom Blog

Inflation Numbers Are WAY Off … And The Government Knows It

Posted by AGORACOM at 8:26 PM on Tuesday, May 13th, 2008

If you listen to inflation figures reported in both Canada and the US, you wonder one of two things:

  1. Life sure seems a lot more expensive for me..what am I doing wrong?
  2. The Government is on crack!

For the record, I’m in camp #2. Come on! Gas and food prices are through the roof and the government tries to tell citizens that inflation is under control?

In Canada, they attributed much of this to the fact that the price of cars dropped by 7.1%, which only applies to that small percentage of consumers buying or leasing a car this year. What about everybody having to pay astronomically higher prices to fill up their cars?

In the US, my friend Barry Ritholtz demonstrates how the CPI (Consumer Price Index) is incorrect … no, WAY OFF. You can view the complete article here but here is the key point:

“…for 80% of the country’s populace, the CPI weightings are dramatically understates what the average American is experiencing in terms of their inflation versus the official CPI measure.


I’m not about to point to conspiracy theories, blah, blah, blah but politics means never telling people the truth when it hurts.

Interestingly enough, my father had a pretty interesting point of view on the underreporting of inflation as well. Specifically, higher inflation leads to higher wages, especially government employees that will demand to keep up with the rate of inflation. Imagine what that would do to government deficit targets?



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