Unreal U.S. Inflation Figures — Politically 'Cooked'
hursday, Oct. 18, 2007
Today it was announced that Social Security payments will show their smallest rise in four years — an increase of 2.3 percent.

This may look generous, considering that the official, "core" inflation rate trumpeted by our government is a staggeringly low annualized rate of a mere 2.1 percent. (The actual, year-on-year increase of 2.8 percent is barely mentioned.)

Fed Chairman Ben Bernanke even referred earlier this week to inflation increases as "modest."

Yet today we learned that, in fact, consumer inflation had risen at the fastest pace in four years — at an annual rate of 3.6 percent.

Why the enormous disconnect?

The answer is that the government wants to decrease spending, both in terms of Social Security payments and lower interest-rate payments on Treasuries.

As we have often said on MoneyNews, we believe official U.S. inflation figures are politically "cooked" to the downside. In our sister publication, the Financial Intelligence Report, we have described in detail how this is done.

Let's talk about the false, spin-doctored trail that we are being led down by our government.

The first con is the so-called "core" inflation figure. A normal person would think that "core" means basic staples. But our government takes out key items, such as oil and food, which are crucially important to consumers. Instead, these are included only in the far less important sounding "headline" inflation figure.


he second disconnect between our government and us, the people, is not just how the CPI inflation figures are calculated, but how they are used in presentation.

We all know that items such as housing, autos, and certain high-tech items such as flat screen TVs and computers are falling in price.

But how many houses, autos, or flat screen TVs does the average consumer buy in a year? Very few, right?

What most people miss, however, is that housing and autos added together represent just under two-thirds of the total CPI number!

Is there any wonder then, that housing and autos, both in price free-fall, are included in the "core" inflation rate and drag the CPI down? (See chart.)

Meanwhile, key items like oil and food that are rising fast make up very little of the CPI, a figure that increasingly bears very little relationship to their actual content in the "shopping basket" of most consumers. In addition, they are excluded from the higher-profile "core" rate!

Just imagine, for a moment, if so-called "volatile" items such as housing and autos, which we purchase only occasionally, were excluded from the core CPI! And what if items which we buy regularly, such as heating oil and food, were included?

The result would be a true inflation rate probably several times higher than the fake figure now dished up to us by our government. It may even reach the rate (as calculated before changes made under the Clinton administration) of 7 percent — much more like the present, effective rate of inflation, what ordinary people "feel" buying everyday things now.

At that level, the Fed funds rate of 4.75 percent would be a shocking negative 2.25 percent. As such, it would reflect the true dimensions of the economic problems now facing us.

Talk about Houdini! The government statisticians who compile our CPI and the politicians who spin it could go into the magic business. If so, they would be enormously rich!

The fact that our U.S. dollar is plunging shows vividly that we are not alone in our suspicion that our government is lying big time about inflation. Our present interest rates are therefore falsely low and inviting the dreaded "stagflation" effect of which we have warned for many months.

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