By Michael, on February 2nd, 2011 How the US Government Manipulates Inflation Data
An eye-opening guest post by Phil of Phil's Stock World
The PCE bothered me yesterday.
The Government told us that the PCE core price index for December was 0% - no inflation at all. I found that to be incredible - as in not credible at all and then Tusked asked me how long the Bernank could keep justifying his rampant money printing with fake government data, to which I responded: "I had many derogatory things to say about that but I was literally so sickened by that BS that I couldn’t bring myself to comment on it so I just left it alone but it’s a very sad joke that our government can tell us that there was no inflation in December while the whole planet is falling apart, isn’t it?"
Fortunately, there was a helpful article in the WSJ by Brett Arends that pointed out that the way the government justifies their low inflation figures is through "substitution and harmonics," a topic expert Government BS detector, Barry Ritholtz had touched on as well. As Barry says:
Harmonics asks the question: "How much of a product's price increase is a function of "inflation," and how much is quality improvement?" Thus, the entire late 1990's concept of Hedonics is premised upon a flawed assumption: that quality is static. Hedonics is a variation of the old trick of comparing the present with the past, instead of the present. Measuring quality improvements is a distraction from the real measure of inflation: the purchasing power of a dollar.
Hedonics opens the door to producing magical results: a lower inflation rate with generally rising prices, a higher growth rate although the economy may be weaker, and a higher productivity number, although productivity would have been declining without the Donica imputations.
What BS, right? Well, when I get mad, I do research and when my research uncovers something - I make an electronic puppet show:
Forward this to your friends and Congresspeople - let's try to get our government to get real!
Video here.
Chart by ShadowStats.com, http://www.shadowstats.com/alternate_data/inflation-charts
