Inflation at Nearly 10 Percent (according to old measure)

by Liberty and Power

When corporate officers cook the books in such obvious ways, they often go to jail. When governments do it, everybody yawns. This has to be the most underreported story of the month. According to CNBC (yes. that's right, CNBC),

Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.
Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products, improvements in quality (i.e. iPad 2 costing the same as original iPad) and other things. Backing out more methods implemented in 1990 by the BLS still puts inflation at a 5.5 percent rate and getting worse, according to the calculations by the newsletter’s web site, Shadowstats.com.

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David T. Beito - 4/15/2011

You may be right. Do you think the current measure has it right?

Jeffrey Rogers Hummel - 4/15/2011

David: You should be very wary of taking seriously anything reported by the guy who puts together the Shadow Government Statistics. He is a kook and entirely unreliable, and if anything, more dishonest in the way he markets his statistics than the government. I believe, along with David Henderson and other libertarian economists that, if anything, the reported CPI overstates rather than understates inflation. I lived through the double-digit inflation of the 1970s and early 80s (as did you), and my anecdotal impression is that what is currently happening to prices doesn't come anywhere close to that era. That was a period in which we all learned that because of high inflation, if you kept your money in a bank, you were an idiot. Are you really experiencing anything comparable?

Mark Brady - 4/15/2011

Good question. It all depends on what's driving the changing basket of goods - technological progress and other supply-side factors on the supply side, or changing consumer preferences on the demand side, or both with one or other factor being in the driving seat. I would suggest that technological progress is the single most important factor. Certainly, we'd want to take improved quality into account and the old measure didn't do that, or at least not very well.

David T. Beito - 4/15/2011

Would would be the most accurate estimate?

Mark Brady - 4/14/2011

Without getting drawn into the question of which Consumer Price Index (now or then) is more accurate, it's worth pointing out that if in some sense today's CPI underestimates the current rise in consumer prices, it is equally true that yesteryear's CPI overestimated the rise in consumer prices back then.