Is the True Inflation Rate being Hidden by Government?

Just to cheer myself up I thought I'd read the wiki entry on 'hyperinflation'. No idea why this subject came to mind...

The article is full of juicy tidbits, such as:

It has been argued that using inflation accounting under International Accounting Standard 29[3] between 2005-2008 the world reserve currency, the US$, is in hyperinflation [4] using gold as the base currency.

Source: en.wikipedia.org...

Sensationalist clutching at straws? Maybe.

This brings things back down to earth, however:

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation...

Here's the rub: I believe there is anecdotal evidence that the true inflation rate is already being covered up, at least here in the UK.

Months ago my wife started coming home from the supermarket horrified by extraordinary jumps in the price of everyday food items. Yet the official inflation figures are incremental and nominally tiny. BBC radio reported only this morning that the inflation rate was 4.5% (if I remember correctly), and immediately followed this by saying this "high rate" was simply the result of the cost of domestic electricity and gas. Is there some - shall we say - massaging of the figures going on?

Globally food prices are running at a 60% increase over the past year. ( Source: www.ft.com... - NB follow the 'Global food crisis' link ) This is a darn sight nearer what shoppers in the UK have been noticing, at least with respect to certain items. It's been cropping up in polite conversation since at least the spring. The discrepancy between the official figures and the reality on the ground is bordering on comical. Only it's not funny.

As for wage controls, also mentioned above, the UK government is already facing a potential winter of discontent. A number of powerful public sector unions have been making noises to the effect that below-inflation pay rises amount to a cut in wages. (Here is a recent public statement by UNISON, for example: www.unison.org.uk... The UK government has been responding with 'wage restraint for the sake of the economy'-type sound-bites with considerable alacrity - which is where things get interesting.

Knowing the unions would insist on increases that keep parity with inflation, could the government have included an underhand tactic in their strategy for keeping a cap on spiraling prices: namely, lying about inflation? ( Also note the following, from Jan. 08, which a) suggests the government foresaw trouble ahead and b) indicates the government already has a predetermined strategy: UK Govt. Plans for 3-Year Pay Deals Capped at 2% )

Can you imagine the level of industrial unrest were inflation to reach double figures, and beyond? Militant unions threatening all manner of chaos in schools, hospitals, the police service, etc., etc.? Anyone remember the 1970s?

Just trying to join the dots.

Here's another thought: blaming 4.5% inflation on "domestic fuel costs" has the advantage of sounding logical, but hang on - domestic fuel bills have been soaring.



Source: news.bbc.co.uk...

The source article for the above graph is peppered with comments like:

Centrica said that wholesale gas prices in the coming winter would be up 89% on the previous winter.

The big question is: does the so-called Consumer Price Index reflect reality? Has the way it is being calculated and then presented perhaps been unduly manipulated?

And what of the cost of vehicle fuel? Quite apart from the horrendous effect this has had on household budgets (I saw my weekly fill-up cost go from the high £40s to £75 in a couple of years, for about 55 litres - although admittedly prices have recently being moving downwards,) it has impacted on virtually every business - and thus their prices - in the country, from manufacturing to the service industry, with few exceptions.

Which leads me to the cause of increases in food prices. I assume it is universally acknowledged that the overriding factor has been the cost of oil, and its impact on transportation costs. Well these increases have been sufficient to see airlines and major tour operators go under (e.g. as happened a few days ago, stranding over 100,000 British holiday-makers, and sparking warnings of up to 30 other airlines going bankrupt in the next 3 to 4 months, source: www.dailymail.co.uk... ). So how can the official inflation rate effectively deny the huge impact of fuel costs on food prices and the overall cost of living for Joe Bloggs?

It may well just be a question of accurate reporting, but a manipulated system that downplays the things that really affect consumers' pockets. Or could there really be more to it? And what of the US and other economies - are suspicions perhaps being raised other than in the UK?

They use a variety of measures on a range of products. Part of the problem is that expensive goods (TV's, Computers etc) have actually been coming down in price, so inflation for the rich is lower than the poor. The average is exactly that, an average. They also use different measures, and although I disagree with the one they use, coz it avoids certain things, the government have been consistent with using the same one for years. I think the disparity between the poor and rich causes the problem, the grouping it hurts most quickly is getting most hurt and this is leading to a loss of confidence in the figures. Of course, if they showed inflation rates per quartile of the population, we might believe them, but that would showing that current conditions and therefore percieved as Labour's management is screwing the poor. So they'll fudge us with an average because then the statistics are to blame, not the government.

Here is the problem in a nutshell - at least for the US:

BLS calculates the CPI for two population groups, one consisting only of wage earners and clerical workers and the other consisting of all urban consumers. In addition, a Core CPI, which excludes volatile food and energy prices and a Chained CPI are also widely used measures of consumer inflation.

en.wikipedia.org...

The CPI (Consumer Price Index) is used to calculate inflation. Note what I bolded there. The CPI was suppossed to be used to adjust wages, but they leave out the two critical commodoties that every person cannot go without, so how is it a consumer price index at all, when the basics are excluded?

Yep, the numbers are all a sham in the end, the CPI, the inflation rate, the GDP. Not to mention at the moment the balance sheets of almost every financial institution at the moment.

I like your presentation here OP, great job.

TBH it didn't take all of that evidence to show me inflation is quite a bit higher than they say it is.

I didnt get time to finish reading but i think it is safe to say the real inflation rate could be as high as 10%, and is going to keep rising.

Thanks for posting this i'll go ahead and flag because I haven't seen or heard anything about the real inflation rate since I haven't been able to connect to monefiles

wonder why that is?

Inflation is a major issue in the uk!
At work we calculated inflation at the moment is running between 8-11% depending on what you take into account to get your figure, e.g. fuel prices!
Great thread OP!
I wish the actual inflation rate was calculated by a major publication because the government seems to get away with blatent lieing!
D

Thanks for all these thoughtful and informative responses. It looks like there is some mileage to this; it should be worth a closer look. I'd be fascinated to see if we can come up with some serious evidence here, and find out what it all means.

The system was changed in the UK 4 years ago, and according to this brief article the effect was indeed an immediate reduction in headline inflation in the UK: www.moneyextra.com...

Now that it's abundantly clear I'm not alone in my suspicions I'm going to do some digging. Here's a nice starter for our friends in the US: US CPI Inflation Statistics Manipulation and Deception? The article includes this thought-provoking comment:

If the BLS is deliberately underestimating the rate of inflation,
you are receiving a smaller paycheck than you would get
if the CPI were calculated using a balanced methodology.

Down the rabbit hole we go...

If we examine how the CPI is calculated,
we find multiple examples
of questionable data manipulation
and institutional deception entrenched in public policy.

...Pausing to reflect on the way:

And this raises a question:
if the CPI is not a price index,
then why is it called a price index?

Isn’t this a bit deceiving?

Looks well worth a read, doesn't it?

I'm off to bed just now, but I anticipate the emergence of yet other cans of worms before this thread is through...

After following this most informative thread for a couple of days: Congressional Leaders Stunned by Warnings I have just been stunned by a couple of videos that reveal (guess who) Ron Paul has been trumpeting this issue in no uncertain terms. Interestingly he speaks of a true inflation rate that closely matches the figures suggested by previous posters in this thread. ( NB: Videos given here are no.s 1 & 3 from the four listed in this post: www.abovetopsecret.com... )





Boy, does this guy get to the heart of the matter. His challenges to the established order conjure an image of a court case: common sense vs. the status quo.

Does anyone else think the Chairman of the Federal Reserve seems to be cowering in the corner when he retreats to the safety of the CPI (Consumer Price Index), rather than debating R.P.'s specific challenges to the policies of the Fed or the specifics of the real systemic weaknesses so eloquently laid out before him? Mr. Paul then very revealingly faces Mr. Bernanke with the PPI (Producer Price Index) which can reasonably be expected to indicate future CPI figures, as producers inevitably pass on their increased costs to consumers.

If retreating to the CPI is such a last line of defence it's no wonder it is being manipulated.





[edit to fix code]

[edit on 21/9/08 by pause4thought]

Looking at your list of things governments can do to jack the CPI I do not see a single item on said list that the US government does not activelly do! M3 Reports? you don't need those go back to sleep.

I am not an economist, but I do have a degree in the subject, and I think inflation in the U.S. is running between 10-20%, considering the effect felt by the average person. The statistics used by the Feds definitely understate it, and that is no coincidence.

How do you fight it? The less fixed your income is, the better. For example, if your income is composed of commissions on or profits from something with rising prices, you will be paid in fresh (inflated) dollars, and you will still be able to afford to pay your current bills. And saving is foolish. The interest rate you get for being a lender is vastly below the rate by which you lose value in the dollar, and similarly, investing in securities will not allow you to maintain your wealth -- if you discount stock prices by true inflation numbers, the markets have been in a free fall for years. You are much better off owing fixed interest debt and allowing inflation to eat away at the value of what you will be repaying in the future, but that of course assumes that you use the money to buy something that will ultimately preserve value, and right now that means buying undervalued real estate.

By the way, the new bailout = even higher inflation.

[edit on 21-9-2008 by Grumble]

Glad to see more people waking up.

From 2005: Lies, Damned Lies and Statistics - Calculating the Consumer Price Index

Here is a website that tries to calculate the real numbers from source data (pre-manipulation): www.shadowstats.com...
.

I'm so glad some 'sane' person on here has raised this. I've been telling everyone that actually believes in this Inflation Rate scam of the sheer lie that it is. I usually start with question to them that are they happy with the 3-4% inflation ?(UK scam figures over the past year or so) They usually start quoting some distant South American countries 100's % inflation in justification of their proud low inflation in the UK. Wow and then I ask how do they feel that they have benefited year on year from this ever low %? You know I never get anyone that can tell me of the benefits that they feel from these countries, so called 'low' inflation and we know why. Its because it isn't a 3-4% world that they live in. Rail fares up 10-20% year on year. Heating 30-50% year on year (something like 1000% since they were subsidised from 'our' control. Car tax, fuel, insurance etc etc etc no where does the figure 3-4% ever come into play until pay increases come around. Then its the upper limit for most companies.

Listen sheeple when ever an economic expert tells you about your economic future....... Ask the question. Who are they working for, who funds their asses and what possible benefit has there ever been with the so called expert information they impart?

Ron Paul has proven that the US sheeple voter has lost any 'free will' that they might have had, its all about the 30sec sound bite. I guess the attention span has gotten somewhat smaller (on both sides of the pond)

Of course the true inflation rate, at least here in Blighty, is being covered up. You only have to look at the sharp price increases for food, petrol, electricity and gas to see that the real rate is more than double the 4% that they are admitting to. In one article I read it was more like 11%.
The reason they don't want you or I to know the real figure is because we would all be putting in for wage increases that matched the rate of inflation! That's why it is so annoying when thhe leaders of this once great country keep insisting that we keep our wage increases to 2% while they take huge handouts from the trough.
"National Strike Anyone?"

Food Prices alone have went up 10-20% depending what you buy. Most cans have went up 10-15% and meat prices much higher than that.

reply to post by pause4thought


I think I'll start off by pointing out this August 10, 2008 Interview of Ron Paul on CNBC in which he specifically talks about the issues in your post. Larry kudlow asked Ron Paul how, as president, he would approach the sub-prime mortgage meltdown and the stock market turmoil.



It is absolutely no secret that printing money out of thin air has always been one of the easiest solutions to economic disparity in the United States. But was it ever really intended to be a long-term solution? The short answer, as far as I'm concerned, is no. Our economic troubles are far too complicated to fix by printing new money. Government Bailouts are also a short-term fix to an extremely complex economic monster which has evolved over the last few decades to a point where a major economic meltdown is more likely than it's been since the Great Depression itself.

Philosophically, this is the major problem. Short-term fixes have always been the solution. Long-term change has always been avoided because of uncertainty and fear. George Bush justifies the recent bailout package by pointing out

www.chicagotribune.com...

"I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package, and that, over time, we're going to get a lot of the money back."

But Bush, himself, refuses to acknowledge the fact that this is a bailout in the first place (at least he refuses to use that terminology).. And when you are talking about a 700 billion dollar price tag, the American people have the right to be pretty pissed off.. Especially given the fact that president bush is officially the most unpopular president in American history and that noone puts anything past this administration. Meanwhile, people's hopes of the American dream are swirling down the drain.. Along with their hope that anyone truly knows what the heck they are doing.

Corruption, corporate greed, an antiquated system of regulation and just a broken economic system in general have resulted in what is currently transpiring. Governmental complacency and truth-twisting haven't exactly helped either. No president in recent memory has ever truly tried to take on a new, revolutionary way of making the economy work for the American people and vice versa. Every program and economic policy shift that has occurred in the 20th century have been band-aids to an ever-growing, inevitable financial crisis.. And when you add-in corporate fraud and an administration of negligent wind-bags you end up where we are now.

Noone is willing to take on the major economic problems. It's all about the corporate elite making their multi-million dollar bonuses by cooking the books while the secretary of the treasury and the Chairman of the FED make the situation look just peachy.. This is why, for me, It was NOT surprising to hear recently that Ben Bernanke was pointing out how an overall economic meltdown is not only possible but likely..

www.abovetopsecret.com...

It isn't so far-fetched to think that the true urgency of our economic situation has been covered up. Especially when you look at some of the more recent congressional hearings on economic issues. And then you suddenly have Ben Bernanke saying

"we’re literally maybe days away from a complete meltdown of our financial system"

It makes complete sense that the true disparity of this situation is just now coming to the surface. And what it implies is pretty sickening.. Especially since no politicians seem to really care enough to put forth some kind of long-term solution that isn't going to leave our kids without hope for a better future... Not to mention a massive bill..
The entire idea of the American dream was built around debt.. But how debt works in our current society doesn't make any sense. Noone wants to leave this problem in the hands of our kids and their kids.. Where is the political confidence we need to permanently fix these problems?
IT IS NON-EXISTENT.

Our best hope is the next president at this point.. Now it's just a waiting game while the economy tries to fix itself without going under in the meantime.

-ChriS


[edit on 22-9-2008 by BlasteR]

Reply to BlasteR

Thanks for that wide-ranging analysis and for the two videos I borrowed (above) from your post in another thread.

It is absolutely no secret that printing money out of thin air has always been one of the easiest solutions to economic disparity in the United States.

What you (and Ron Paul) are effectively saying high future inflation IS THE POLICY, is it not? Conspiracy theorists are gunna love this, especially as the accusation of a policy of printing money as a way out of the current crisies is not even denied by Mr. Bernanke.

It isn't so far-fetched to think that the true urgency of our economic situation has been covered up.

The secret session in Congress comes to mind.

...Especially when you look at some of the more recent congressional hearings on economic issues. And then you suddenly have Ben Bernanke saying

"we’re literally maybe days away from a complete meltdown of our financial system"

Not a whisper of such things on this side of the pond. How can a man in his position say that without the entire world media going into a frenzy & stock markets around the world going into free-fall? Surreal.

Great work so far P4T!

I find it amazing that mathematicians or economists working privately dont challenge the way inflation is calculated, it makes no sense to me that the government harks on about reducing or 'stabilizing' inflation at between 2-3% (in the uk) yet the way they are calculating inflation is giving a false figure so how will they ever achieve this when the numbers are all wrong!

Consumer Price Index measures a selection of goods and services of an 'average' consumer.
Lets look into this a bit deeper;

firstly im using National Statistics Online for my information.

CPI 2008 Goods and Services PDF (UK)

The above link is a pdf file about what the government is using to calculate the UK CPI,
I think the main problem arises that the government uses a 'selection' of goods. Who chooses this information, and how easy is it to manipulate this information to 'lower' the inflation rate?

Still Researching D

edit:core inflation

I didnt realise the US had dropped CPI to measure inflation and now only use core inflation which excludes price shocks e.g. food/energy price jumps. Is that crazy or what though because these sudden price changes effect the average person's finances more than anything else?











[edit on 23/9/08 by Dskys]

People do challenge the inflation numbers daily... Even degreed people, the thing you don't see is anyone in the media that DARES give them enough airtime to defeat the other meme.

Here's a new angle to tease the brains of the economists out there and (possibly) bring a smile to the face of the 'man in the street'.

If the base rate in the US is now 1.5%, 4.5% in the UK and roughly within that range throughout the major industrialized economies but true inflation is running at 10-15%+ are the banks effectively giving away money and making a loss when they lend it at just a few percentage points above the base rate?

Pondering this and trying to assess the repercussions feels a bit like one of those optical illusions where a staircase goes up, turns a few corners, then ends up back where it started. Or is borrowing money (at a fixed rate) now truly a free lunch, in that you end up paying back less than you borrowed when the value of the money is adjusted for inflation?

In fact, if you borrow now and hyperinflation starts soon, presumably you effectively end up paying back nothing...

Hello P4T.

Nice Thread

I think the thing to remember with inflation is that the rising cost of goods is a symptom of inflation, it is not the cause of inflation.

Inflation is caused by a reduction in the value of your money, the government increasing the money supply by printing money for example creates inflation. As the value of the money decreases, the cost of goods naturally increases.

We tend to look obsessively at the official inflationary figures based on measuring a basket of goods, but this is kind of back to front, and a waste of time on 2 fronts:

Firstly, they keep changing the goods to keep the official figure lower, which makes the measure pretty much meaningless.

Secondly, the price of goods can rise & fall on the back of demand & supply, which is not an inflationary price increase, but how do you distinguish from a basket of goods which have increased due to inflation, & which from demand?

We are I think about to see a huge spike in inflation due to the unprecidented amounts of money being printed around the World.

This is good for people with debts though as you say, inflation erodes debt, since the principle amount of money that you originally borrowed had far more purchasing power than the new, lower value currency.

Sounds great in theory, but not much use if you're still being paid the same number of Dollars/Pounds/etc but everything suddenly costs twice as much.

Or if you suddenly find yourself out of work...

I don't know if any of you guys have seen this yet, but most of this movie applies to this post. This is the recently released addendum to the "Zeitgeist" movie. The truth is pretty scary..

The full length, 2 hour version of the movie can be found HERE at the link provided by the zeitgeistmovie website. And it is very very important for all of us to watch.

-ChriS