The “I-Word”
Postbellum Austrian krone: As worthless now as they were then…
During Lent, we Catholics are instructed not to say the “A-word”, i.e. “alleluia”. It’s use is suspended until Easter.
In the worlds of politics, economics, and finance, agents this season are leery of using the “I-word” namely “inflation” unless it is a referent to a phenomenon immediately dismissed as unworthy of concern. After all, the CPI (consumer price index) which is a governmental measurement of inflation is hovering around 1.0 percent month-to-month.
This, of course, does not pass the smell test. You know, we all know, costs are rising at various consumption as well as production levels. Your potato chip bag is more empty than ever. Your burrito is ever more expensive. Your car warranty covers less and less, thus the pesky telemarketing calls to increase coverage.
The Federal Reserve and the Treasury have every incentive one can imagine to downplay inflation rates. The artificially low interest rates that precede and follow incentivize consumption, sustain employment (at least for the short term), keep debt service payments–well–serviceable, and suppress Social Security cost-of-living payment increases.
Per Perianne Boring:
The government has a few resources at its disposal to manipulate the CPI. First, the Bureau of Labor Statistics operates under a veil of secrecy. The raw data used to calculate the CPI is not available to the public. When I asked why, I was told ‘so companies can’t compare prices.’ This makes very little sense because companies can easily compare prices with data openly available on the internet. It also makes it impossible to audit their findings. Additionally, over the past 30 years, the government has changed the way it calculates inflation more than 20 times. These ‘methodological improvements’ to the CPI are said to give a more accurate measure of consumer prices. However, these changes could also be a convenient way to include or exclude certain products that give favorably low results.”*
So, my self-imposed exercise to find a more accurate measure of inflation proceeded.
CPI plays no part in it.
What follows is a combination of private, skeptical inflationary measures with official government, yet alterative-to-CPI indices:
Chapwood Index (5-year average, 2016-2020)= 9.77% http://www.chapwoodindex.org/
Chapwood Index (proportional, adjusted to growth rate of M2, for 2020-21)= 13.86% http://www.chapwoodindex.org/ https://fred.stlouisfed.org/series/M2
PCE (personal consumption expenditures, 2019-20)= 5.10% https://www.bea.gov/data/consumer-spending/state
PPI (US producers price index, 2019-present)= 3.41% https://ycharts.com/indicators/us_producer_price_index
ECI (US employers cost index, 2019-present)= 4.90% https://www.bls.gov/news.release/pdf/eci.pdf
The second measure requires some explanation. It is an adjusted inflationary rate scaled (meaning here: proportional) to the expansion of the money supply (M2) in previous years 2016-2020.
Average all of those rates out and you get what I would call the Richied Actual inflationary measure (or RAIM *not copyrighted… as of yet) of 7.41%. That passes the smell test, the common sense test, it’s not so rotten in Denmark test, etc. etc.
Feel free then to say the “I-word”. It’s here. And it’s going to stick around for awhile. Unless we do like the Austrians in 1925, with the real magic man Ludwig von Mises writing the new bylaws of the Austrian National Bank and returning the krone to the gold standard, the dollar will be “krone-ed” real soon.
And, still people declare bitcoin to be a nothing?!
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*Brian G. Schuster, “True Inflation Exceeds 7%”, Medium.com: (2016) https://medium.com/@bgschust/true-inflation-exceeds-7-8dced84ae05
