The Chapwood Index reports the unadjusted actual cost and price fluctuation of the top 500 items on which Americans spend their after-tax dollars in the 50 largest cities in the nation and it shows price inflation to be much higher (by 40%!) than that indicated by the Consumer Price Index over the past 4 years! No wonder the poor in America are suffering (with their wages and benefit increases have been aligned to the CPI) and there is a general decline in business on Main Street in the USA.
The above excerpt (edited), and what follows, is taken from an article by Alasdair Macleod entitled Inaccurate statistics and the threat to bonds which can be read in its entirety HERE.
There are two possible approaches to assessing the true rate of price inflation:
- you can reverse all the tweaks government statisticians have implemented over the decades to reduce the apparent rate (as does John Williams of Shadowstats.com), or
- you can collect a statistically significant sample of price data independently and turn that into an index and the Chapwood Index does just that and deserves wider publicity.
This is from the Chapwood Index website: “The Chapwood Index reflects the true cost-of-living increase in America. Updated and released twice a year, it reports the unadjusted actual cost and price fluctuation of the top 500 items on which Americans spend their after-tax dollars in the 50 largest cities in the nation.”
The Index is statistically significant, and it consistently shows price inflation to be much higher than that indicated by the Consumer Price Index (CPI). The table below shows this difference since 2011, and how it affects real GDP.
Sources: Chapwood Index, US Bureau of Labor Statistics and Bureau of Economic Analysis. Figures may not total due to rounding.
The Chapwood number in the table is the simple arithmetic average of the 50 cities. The year-in, year-out 10% inflation rate is notable. Furthermore, Chapwood shows cumulative inflation rate as shown by the CPI for the four years to be understated by 39.9%, and using Chapwood numbers in place of the GDP deflator, real GDP has slumped a cumulative total of 21.4% over the four years.
No wonder the poor in America are suffering: when their wages and benefit increases have been aligned to the CPI, they have fallen nearly 40% in real terms over the last four years. The resulting decline in business on Main Street revealed by these figures explains why Wal-Mart are laying people off and closing stores, and why trade associations continually issue disappointing trading assessments.
Understated price inflation fundamentally distorts everything that is macroeconomic, from monetary policy to economic commentary.
- It misleads central bankers into thinking they are missing their inflation targets when they are in fact exceeding them by a dangerously wide margin.
- It misleads analysts into thinking we are on the brink of a deflationary slump with prices maybe about to collapse and, most worryingly of all,
- It causes bond markets to become more mispriced than even hardened bears realize, something that’s very likely to be corrected through a financial shock.
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