Consumer Price Index is a Misleading Indicator

Consumer Price IndexIn a recent speech, Sarah Palin claimed that Mr. Obama's “pump priming” strategy to get us out this recession would come at a serious price, with one of the results a significant rise in grocery prices, which we have already begin to notice. Unfortunately, the Wall Street Journal's Sudeep Reddy decided to rebut Ms. Palin's allegations by invoking the Consumer Price Index (CPI), perhaps the most manipulated, self-serving indicator used by dear, old Uncle Sam.

In a monumental display of sheer ignorance, Reddy said, “Grocery prices haven't risen all that significantly, in fact. The Consumer Price Index's measure of food and beverages for the first nine months of this year showed average annual inflation of less than .6%, the slowest pace on record.”

We have to ask, has Reddy ever actually been in a grocery store?

More evidence that another poor soul in the vanishing print media has chosen to divorce themselves from reality. AMA simply cannot allow this blatant disregard for truth and accuracy to pass unchallenged. Any journalist with a smidgin of common sense and integrity realizes that the CPI is a completely bogus indicator that indicates, well, nothing of much value. It is so twisted and distorted by torturous manipulations that it reflects the reality of consumer prices in America not in the least.

Here are a few of the issue any thinking person has with the CPI.

The Bureau of Labor Statistics is the agency charged with calculating the CPI. The BLS has become expert at using geometric weighting and hedonics to constantly push the CPI results downward. The reason is obvious. Since 1975, the annual increase in Social Security payments has been tied to the CPI results, the so called “standard of living increase.” By keeping the CPI low, the Fed keeps Social Security payouts from increasing, thus breaking a promise and saving money, which is exactly the way their mother must have taught them to conduct business, we're sure.

As far as the food calculations Ms. Palin was referring to, the CPI assigns a lower weight to rising prices and higher weight to falling prices, a gimmick that allows the number to always read artificially low in a devalued currency climate, which is where we most assuredly are and will continue to be. To maintain economic and societal stability in their little fantasy world, the government would like the CPI number to always read between zero and three percent. Magically, that's usually where it ends up. As AMA, we've run out own numbers and figure the true rate of inflation is at least 10% and maybe higher.

The Fed just announced that there will be no increase in Social Security payments for 2011, this in the face of food prices set to shoot to the ceiling. Welcome to your America, Granny, land of liars and cheats.

The American Monetary Association Team

American Monetary Association

Flickr / Bogdan Migulski

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