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Wednesday, February 24, 2010

Twisting The Numbers - The CPI And You

The consumer price index is bandied about to no end it is the measure by which inflation of the lack of it is measured. These numbers justify the actions of the Fed and virtually every governmental organization for the determination of benefits from wages and salary's to social security  and VA as well as our ability to pay higher taxes or the amount of benefits you receive for student loans. In short what the the government determines this number to be is absolutely critical to your daily life.

The problem is that the actual number and method they use to arrive at it and what it means, seems to change without regard to what is actually  going on in everyday life. Many of the most significant impacts to the every day American consumer are not factored into the CPI. Food, gasoline and many other consumables are not factored into this cars products and business services are. this means that the numbers for inflation and the cost of living are not true representations of what we spend every day.  I just paid $8.98 for the same can of coffee I have been buying for 15 years, 18 months ago it cost me $4.98.  These and many other costs are not factored in to the CPI.

The fact is that the CPI has been totally re vamped over ten times since it's inception this has led to the manipulation of the facts the numbers and what is and is not counted. Washington continues to spin these numbers to to their benefit and to the cost of millions of Americans whose plight in the normal course of American life  is bad enough but now is all but impossible.

I include an brief overview of the CPI, and the two prevailing views. Basically one says inflation is underestimated, and the other says its over estimated. I will let you be the judge but remember this, any activity of government that cannot be reduced to one clear concise paragraph is hiding something.

History of the CPI Consumer Price Index

The Consumer Price Index was initiated during World War I. Because people's buying habits had changed substantially, a new study was made covering expenditures in the years 1934-1936, but was comprehensively revised in 1940 during WWII. The index was again revised in 1951, 1953 and 1964.

In 1978, the index was revised a new and expanded, A second, more broadly based CPI for All Urban Consumers, was introduced

Perceived overestimation of inflation

In 1995, the Senate Finance Committee, appointed a commission to study CPI's ability to estimate inflation, the commission found in their study the index overestimated the cost of living.

Perceived underestimation of inflation

Critics believe however, that because of changes to the way that the CPI is calculated, and because energy and food price changes are currently excluded from the Federal Reserve's calculation of "core inflation," that inflation is being dramatically underestimated.

Some critics believe that changes in CPI calculation due to the Boskin Commission have led to dramatic cuts in inflation estimates.

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