Tuesday , 27 June 2017


Latest CPI Data Shows Inflation at 1.66% vs. ShadowStats' 9.26% – Which is More Accurate?

The July 2011 Consumer Price Index for Urban Consumers (CPI-U) released yesterday puts the June year-over-year inflation rate at 1.66%, which is less than half the 3.82% average since the end of the Second World War. That being said the ShadowStats Alternate annualized rate of inflation is 9.26%. [Which is more accurate?] Words: 384

So says Doug Short (www.advisorperspectives.com) in edited excerpts from his original article* as posted on Seeking Alpha.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Short goes on to say, in part:

Bureau of Labor Statistics CPI Data

The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913, and numbers are conveniently available from the FRED repository (here). My long-term inflation charts reach back to 1872 by adding Warren and Pearson’s price index for the earlier years….This look further back into the past dramatically illustrates the extreme oscillation between inflation and deflation during the first 70 years of our timeline.

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ShadowStats Alternate Inflation Data

The chart below includes an alternate look at inflation *without* the calculation modifications the 1980s and 1990s (Data from www.shadowstats.com) and shows a ShadowStats Alternate annualized rate of inflation is 9.26%

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Click to View

Bureau of Labor Statistics’ CPI Data vs. ShadowStats Alternate Inflation Data

On a personal note, the more I study inflation the more convinced I am that the current BLS method of calculating inflation is reasonably sound. As a first-wave Boomer who raised a family during the double-digit inflation years of the 1970s and early 1980s, I see nothing today that is remotely like the inflation we endured at that time.

Moreover, government policy, the Federal Funds Rate, interest rates in general and decades of major business decisions have been fundamentally driven by the official BLS inflation data, not the alternate CPI. For this reason, I view the alternate inflation data as an interesting, but ultimately useless statistical series.

That said, I think that economist John Williams, the founder of Shadow Government Statistics, offers provocative analysis on a range of government statistics. While I do not share his hyper-inflationary expectations, at least not based on current economic conditions, I find his skeptical view of government data to be filled with thoughtful insights.

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For independent evidence that the Consumer Price Index is a reasonably accurate representation of the prices we pay, see the MIT Billion Prices Project US Daily Index.

Click to enlarge

* http://seekingalpha.com/article/728341-a-long-term-look-at-inflation?source=email_macro_view&ifp=0  (To access the above article please copy the URL and paste it into your browser.)

Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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One comment

  1. I think even the 9.26% is way too low…

    As the Government keeps redefining the criteria, these numbers are being “punked” to make them “acceptable” to the masses. I can’t locate the article but one I read recently said that if the COLA was calculated using the “old” method Social Security payments would be about doubled…