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I have not. I track every penny I spend and have been doing so since 2000. I'm just not seeing the inflation that Shadowstats claims.
Let's try a simple test using the historical price of Hershey's candy bars. If the CPI was vastly under-reporting inflation over the years, then surely the price of candy bars must be rising at a rate far higher than the government will admit. Therefore, all we have to do is look at the long-term trend in inflation adjusted candy bar prices.
I should also point out that Sugar #11 has been in a bull market. If inflation was going to strike anywhere, surely sugar-packed candy bars would be among the first to feel the inflationary pain. Therefore, it is probably not fair to judge the BLS on candy bar prices alone. Let's try anyway though.
The long-term trend is flat. The CPI has clearly been tracking the long-term price of candy bars fairly well. The two data points I offer from 2009 are well within the margin of error. You will note that inflation adjusted terms, the most recent Safeway data point is very similar to the pricing of candy bars seen in the 1970s (the last time energy prices were high).
I do not see any signs of a CPI conspiracy based on the price of candy bars.
Why do people continue to give credibility to an operation like Shadowstats? Now that's something that I'd like to hear explained. - James Hamilton, Professor of Economics at the University of California, San Diego
I'd really like to know too. Perhaps people just love a good conspiracy theory. Here's a favorite of mine.
Top 10 Wackiest Conspiracy Theories
Esoteric Hitlerists and conspiracy theorists interested in Nazi mysticism and World War II have speculated that the Germans landed on the Moon as early as 1942.
According to other theories it is believed that the Nazis had made contact with 'half a dozen' alien races, including the malevolent Reptilians.
Source Data:
The Food Timeline
BLS: Historical CPI
21 comments:
Stag,
I'm seeing deflation now, but a few years ago when house prices were rising 10%/year and gas was over $4/gal I was definitely experiencing inflation above that reported by the CPI.
They say it averages out in the long run. Of course, In the long run we're all dead. I'm thinking the Fed wants to make sure the majority don't die flat broke. Dying heavily indebted and with a negative net worth is better for the eCONomy.
New thought. We all understand the concept of eliminating the middle man. I'm thinking Wall St. took it a step further and decided to eliminate the middle class.
"New thought. We all understand the concept of eliminating the middle man. I'm thinking Wall St. took it a step further and decided to eliminate the middle class."
Best comment in a long time! Mab, can I use that in a post, I can give full credit but I would rather just rip you off. Let me know.
Mean reversion? Inflation was running way hotter than reported for most of the 2000-2007 time frame and now it may run lower than reported for some time? Inflation (just talking prices) can be very targeted of course.
can I use that in a post, I can give full credit but I would rather just rip you off.
GYSC,
You can rip it off. My jokes are free for all. Hey:
http://www.youtube.com/watch?v=-c2OM7HEfrs
Besides, we have a rip-off money system. You know, privately created money that is backed by a pseudo Government secret organization that is itself backed by our actual Government.
When shills say that we need the Fed to remain independent, they're really saying they want the profits to be private, but the losses public.
mab & GYSC,
Shadowstats ALWAYS sees inflation higher than the government reports, even when housing and oil crash. Go figure.
I think the CPI probably averages about right for the average person. Few people are the average person though.
Using rents instead of house prices in the CPI should be about the same over the long-term, assuming you don't mind housing bubbles, housing crashes, stimulus, and bailouts that is.
Mark,
I agree. Inflation is overstated right now (The FED would love a little more) but was understated for a while. I have not really seen inflation for a while but the shadow (knows!) has. Gotta check your own bias at the door gentlemen.
word check is:
pessim
so close to .....
least square regression is not applicable to the data set shown, i.e. there is no central moment about the trend
Anon,
STFU
oops!
Meant to type after last comment:
Math makes my head hurt!
No offense!
Anonymous,
You aren't really trying to suggest that there is no correlation between rising candy bar prices and rising general inflation over the last 100 years are you?
GYSC,
LOL! There's been an STFU misfire. Please disperse. Move calmly to the exits. There's nothing to see here.
One more thought.
Just because the data is noisy doesn't mean I shouldn't use least squares on it. It isn't like I'm trying to prove that a linear relationship exists.
If you were to tell me that overall inflation was to double over the next 10 years and that candy bars currently cost 89 cents, then my best guess for candy bar prices 10 years from now would be $1.78 (2 x $0.89). I would no doubt be wrong but I'd probably be doing better, on average, than guessing randomly.
As a side note, this represents nearly 100 years of candy bar prices.
Even a 1% difference per year between candy bar inflation and overall CPI inflation would have a HUGE impact in the chart. The trend line would not be even remotely flat. We would be seeing inflation adjusted candy bar prices twice as high as they are now.
Once again, based solely on candy bar prices I see no great long-term CPI conspiracy here.
Mark,
what you have to understand is that the way hedonic adjustments are made will impact the candy bar pricing in the CPI.
If candy bars go from $0.89 to say $2 each, the government will assume you will substitute rocks for the candy bar, and rocks are free, so no inflation! Amazing!
This will cause inflation in dental costs however. There is no free lunch, only broken teeth.
Stag,
Even a 1% difference per year between candy bar inflation and overall CPI inflation would have a HUGE impact in the chart.
1% over 100 years is a 2.79 times differential - HUGE indeed, but barely noticeable in real time.
Unfortunately, our nightmare occured over a much shorter period (less than ten years) and at far bigger differentials than 1%.
From 1970 to 1998, house prices and CPI both increased ~ 5.4% annually. From 1970 to 1998, wages and salaries increased 7.5% annually. Sounds good!
Now the bad news.
From 1998 to 2006, house prices more than doubled, increasing at an annual rate of 10.4%! From 1998to 2006, CPI increased only 2.6% annually. From 1998 to 2006 total wages and salaries increased at a 4.7% annual rate, and have been flat from 2006 until 2010. From 1998 to 2006, household debt (primarily mortgage debt) exploded at a 12% annual rate.
Due to the magic of coumpounding, each doubling produces more than had ever existed before. More than double the debt without anywhere near double the wages. Is it any wonder we have more than double the fianancial misery!
Isn't it a wonderfule system? Warren "the undisputed bailout champ" Buffett keeps saying so.
Charging people twice as much for a house is NOT wealth creation no matter what Bernanke and the other eCONomists say.
mab,
Charging people twice as much for a house is NOT wealth creation no matter what Bernanke and the other eCONomists say.
Someone told me recently that China's real estate couldn't be in a bubble because they have large downpayments. I replied that I didn't care if they put 100% down. If the cost to buy a widget greatly exceeds the cost to create a widget, then bubbles happen.
2006 Lumber
1998 Lumber
The National Association of Realtors and the Fed sure pulled a fast one. Lumber is housing's widget. The cost of lumber was flat over the periiod. How they got people to pay twice as much simply because it is anchored to the ground is a travesty. Our economy has been narfed.
NAR-FED's Motto
Never a better time to buy a home using the lifeblood of our economy!!
GYSC,
I tried to post a "rock candy" link on my Playstation but I've been getting all sorts of errors in this comment system today. Everything seems mostly okay on my computer though.
Blogger is wacky today.
I blame it on the conspiracy post, they shut you down as not to foment strife.
Stag,
I used the googleizer and it turns out NARFED is actually a word:
http://www.urbandictionary.com/define.php?term=narfed
It means to get high on marijuana. I think we can safely add to the definition:
To get high on "official" propaganda and then roled.
A financial "mickey finn".
http://en.wikipedia.org/wiki/Mickey_Finn_(drugs)
Financial date rape is not only legal but glorified by our Fed and Government. All hail the financial bonus seeking eCONomy.
mab,
Caveat emptor! Mors ultima linea rerum est!
Stag,
Si hoc comprehendere potes, gratias age magistro Latinae
Now you guys are speaking in tongues!? "Carthage MUST Burn" in latin!
Arthagecay ustmay urnbay!
Sorry. I really only know pig latin. ;)
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