Inflation or deflation? Shadowstats says “inflation”

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Inflation or deflation? Shadowstats says “inflation”

Wednesday, October 14th, 2009 | Economics |

In comments to Inflation or deflation? No deflation since U.S. left gold standard in 1971 someone comments that we’re seeing deflation this year, leading to things like the lowering of the minimum wage in Colorado.

Except that we’re not seeing deflation this year. We’re still seeing inflation. Here’s why.

The government’s formula for calculating inflation was changed in the Clinton era to reduce reported inflation. Carter and Reagan had made small adjustments that likewise had reduced reported inflation. It’s to the government’s benefit to underreport inflation, because the official Consumer Price Index figure contributes to Social Security benefit increases, automatic government employee pay raises, etc.

That change in the CPI formula makes the current CPI discontiguous with the historical inflation/deflation chart shown here because you’re talking apples and oranges. You can’t compare official government CPI figures for 1950 and 2009 because the formulas for calculating CPI were different in those time periods.

Enter Shadowstats.com. They run current data to calculate CPI using the pre-Clinton formula. Using the pre-Clinton methodology we’re still at 2% inflation, not the official 2% deflation figure.

Previously - Inflation or deflation? No deflation since U.S. left gold standard in 1971

Tags: inflation

1 Comment to Inflation or deflation? Shadowstats says “inflation”

Douglas2
October 16, 2009

We have to compute inflation with a “basket” of the stuff people buy, and the average “basket” will vary substantially from any one person’s individual experience. As an example, a retired person’s view of inflation will be higher this year where staple food prices increased substantially, but a working single persons view would be lower because restaurant food prices have increased less or stayed stable while fuel for commuting is cheaper.