Inflated inflation?

Considering myself as a normal person I always thought about inflation (not that I gave the whole thing a lot of thought) as the average of rising prices added to everyday used products.

Inflation is an increase in the overall price level over time or a reduction in the value of money.

The official inflation rate in each country is tracked by calculating changes in a measure called the Consumer Price Index (CPI). The CPI tracks changes in the cost of living over time.

The Bureau of Labor Statistics of the United States Department of Labor defines the CPI as:

"a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."

and It defines inflation as:

"the overall general upward price movement of goods and services in an economy."

Now as you can see those might sound the same but they are fundamentally different. The US will be taken as an example but this is going on in most countries and is in fact a way to trick the people and keep inflation lower then it should be.

Image Courtesy of ShadowStats.com

The CPI is taken and used to base the inflation on that is used by the goverment. On the chart we can see the "official" inflation in RED and the actual one in BLUE

Now here is the sneaky part.

The CPI was designed as being a measure of the cost of living needed to maintain a constant standard of living.

• Before it would compare the price of your Levi Jeans one year with the price of the same Levi Jeans the next year.
• Now they take the price of the Levi Jeans the first year and the price of a generic brand pair of Jeans the next year saying that you are getting a constant standard by getting a pair of jeans.
• Before you could have the price of free range eggs one year and free range eggs the next year
• Now you can have free range eggs the first year and eggs from a chicken battery farm the next.

So for them they are providing you with the same standard of living by saying that you are still able to afford a pair of jeans or eggs from one year to another. That is how the CPI is kept artificially low and as such has a knock on effect on the official inflation rate.

So people are starting to notice that to keep buying the same products they have to pay a lot more then the wages are rising with Inflation.

If your wages are not rising then you could say that you lose the inflation in purchasing power every year.

• If the inflation is low at 1 or 2% then you could ignore that
• but since the actual inflation is a lot higher at 5 or 6% people cannot buy their favourite brands from one year to the next and are getting bled dry slowly a bit more each day.

On top of that the US printed around 4 to 5% in extra money last year and even that is not being reflected into the inflation but that is what it is.

Questions to you guys:

• Can you feel the difference in your purchasing power compared to a few years ago?
• Are you buying less brands these days then a few years back?