CPI-U number (Apr) shows annual inflation of 4.8%. Here is detail that shows REAL inflation is 11.8!

[Roland99]

Yesterday's economic news had this little very negative tidbit (which was cause enough to send the Dow shooting to a new record high. yay for mega-corps!):

http://www.safehaven.com/article-7560.htm

The BLS is reporting Real Earnings Drop .5 percent in April.

Real average weekly earnings fell by 0.5 percent from March to April after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in average weekly hours and a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers were partially offset by a 0.2 percent rise in average hourly earnings.

Data on average weekly earnings are collected from the payroll reports of private nonfarm establishments. Earnings of both full-time and part-time workers holding production or nonsupervisory jobs are included. Real average weekly earnings are calculated by adjusting earnings in current dollars for changes in the CPI-W.

The BLS also reported the Consumer Price Index for April 2007 today.

On a seasonally adjusted basis, the CPI-U advanced 0.4 percent in April, following a 0.6 percent increase in March. The index for energy increased 2.4 percent after advancing 5.9 percent in March. In April, the index for petroleum-based energy rose 4.6 percent versus a 10.1 percent increase in March. The food index rose 0.4 percent in April, slightly more than in March. The index for all items less food and energy advanced 0.2 percent in April, following a 0.1 percent rise in March; the index for shelter rose 0.3 percent after advancing 0.1 percent in March, resulting from an upturn in the index for lodging away from home.

So, what is the CPI-U?

http://www.shadowstats.com/cgi-bin/sgs/article/id=343

There now are three major CPI measures published by the BLS, CPI for All Urban Consumers (CPI-U), CPI for Urban Wage Earners and Clerical Workers (CPI-W) and the Chained CPI-U (C-CPI-U). The CPI-U is the popularly followed inflation measure reported in the financial media. It was introduced in 1978 as a more-broadly-based version of the then existing CPI, which was renamed CPI-W. The CPI-W is used in calculating Social Security benefits. These two series tend to move together and are based on frequent price sampling, which is supposed to yield something close to an average monthly price measure by component.

The C-CPI-U was introduced during the second Bush Administration as an alternate CPI measure. Unlike the theoretical approximation of geometric weighting to a variable, substitution-prone market basket, the C-CPI-U is a direct measure of the substitution effect. The difference in reporting is that August 2006 year-to-year inflation rates for the CPI-U and the C-CPI-U were 3.8% and 3.4%, respectively. Hence current inflation still has a 0.4% notch to be taken out of it through methodological manipulation. The C-CPI-U would not have been introduced unless there were plans to replace the current series, eventually.

Traditional inflation rates can be estimated by adding 7.0% to the CPI-U annual growth rate (3.8% +7.0% = 10.8% as of August 2006) or by adding 7.4% to the C-CPI-U rate (3.4% + 7.4% = 10.8% as of August 2006). Graphs of alternate CPI measures can be found as follows. The CPI adjusted solely for the impact of the shift to geometric weighting is shown in the graph on the home page of www.shadowstats.com . The CPI adjusted for both the geometric weighting and earlier methodological changes is shown on the Alternate Data page, which is available as a tab at the top of the home page.

So, if CPI-U is at a 4.8% annual clip, that means the traditional inflation rate is really 11.8%!!! That's even higher than last year's 10.8%! Just another very glaring sign that the Federal Reserve is still pumping more easy credit into the system. The time to pay the piper is coming and it's gonna hurt like hell.

[Warren Stupidity]

1. I go by the college tuition/health insurance index.

Inflation is out of control and has been for quite a while. We are living within a bullshit bubble.

[Roland99]

3. I was doing some cursory research on prices of a few items here in town since 2001 or so >>>>

Milk - May 2001 - $2.49/gal
Milk - Apr 2007 - $2.95/gal
18.5% increase

Gas - May 2001 - $1.40/gal
Gas - May 2007 - $3.20/gal
129% increase

Tuition (resident) - UofL - 1 semester - 2001/2002 - $1897
Tuition (resident) - UofL - 1 semester - 2007/2008 - $3470
83% increase

[roamer65]

16. Gold is the anti-dollar and it confirms your calculations.

Gold was $266/oz on the day the nitwit took office. Today it is trading for around $656/oz.

[Robbien]

2. I go by the prices paid at the grocery store

where inflation is about 25-40%.

Grocery prices right now are up at least 25% more than what we paid a year ago.

[gollygee]

4. Grocery prices have gone insane

between that and gas . . . at least it's summer so I don't have to heat the house.

[Roland99]

5. Prices are up and sizes are smaller.

I've noticed it in snack chips and toothpaste, specifically.

[raccoon]

6. I think Schlotzsky's pizzas are smaller. Seriously. nt

[muriel_volestrangler]

7. As if by magic, an "add 7%" claim appears!

No reasoning behind that, statistics, or anything. Just a bald statement. Frankly, it's bullshit.

[Roland99]

8. All you have to do is read the beginning of the article from the link in the OP

http://www.shadowstats.com/cgi-bin/sgs/article/id=343

Inflation, as reported by the Consumer Price Index (CPI) is understated by roughly 7% per year. This is due to recent redefinitions of the series as well as to flawed methodologies, particularly adjustments to price measures for quality changes. The concentration of this installment on the quality of government economic reports will be first on CPI series redefinition and the damages done to those dependent on accurate cost-of-living estimates, and on pending further redefinition and economic damage.

The CPI was designed to help businesses, individuals and the government adjust their financial planning and considerations for the impact of inflation. The CPI worked reasonably well for those purposes into the early-1980s. In recent decades, however, the reporting system increasingly succumbed to pressures from miscreant politicians, who were and are intent upon stealing income from social security recipients, without ever taking the issue of reduced entitlement payments before the public or Congress for approval.

In particular, changes made in CPI methodology during the Clinton Administration understated inflation significantly, and, through a cumulative effect with earlier changes that began in the late-Carter and early Reagan Administrations have reduced current social security payments by roughly half from where they would have been otherwise. That means Social Security checks today would be about double had the various changes not been made. In like manner, anyone involved in commerce, who relies on receiving payments adjusted for the CPI, has been similarly damaged. On the other side, if you are making payments based on the CPI (i.e., the federal government), you are making out like a bandit.

...

The BLS publishes estimates of the effects of major methodological changes over time on the reported inflation rate (see the "Reporting Focus" section of the October 2005 Shadow Government Statistics newsletter -- available to the public in the Archives of www.shadowstats.com). Changes estimated by the BLS show roughly a 4% understatement in current annual CPI inflation versus what would have been reported using the original methodology. Adding the roughly 3% lost to geometric weighting -- most of which not included in the BLS estimates -- takes the current total CPI understatement to roughly 7%.

[Darkhawk32]

9. Reading is Fund-a-Mental! n/t

[muriel_volestrangler]

10. It's still bullshit

That he made up a 3% figure and a 4% one doesn't mean anything. Perhaps he's misplaced a decimal point. The reference to October 2005 goes to:

Based on detailed BLS estimates of the impact of its methodological changes over time, published in the Monthly Labor Review, June 1999 ("Consumer Price Index research series using current methods, 1978-98," by Kenneth J. Stewart and Stephen B. Reed)

http://www.shadowstats.com/cgi-bin/sgs/article/id=679

which looks at a BLS publication that says inflation was underreported from 1978-1998 - compared to the current methodology:

The Bureau of Labor Statistics has made numerous
improvements to the CPI over the past
quarter-century. While these improvements make
the present and future CPI more accurate, historical
price index series are not adjusted to reflect
the improvements.1 Many researchers, however,
would like a historical series that was measured
consistently over the entire period. Accordingly,
this article presents an estimate of the CPI-U from
1978 to 1998 that incorporates most of the improvements
made over that time span into the
entire series. The new measure, called the CPI research
series using current methods (CPI-U-RS),
attempts to answer the question, “What would
have been the measured rate of inflation from
1978 forward had the methods currently used in
calculating the CPI-U been in use since 1978?”2
...
Over the 21-year period of the study (December 1977 to
December 1998), the CPI-U-RS increased 141.2 percent, compared
with 163.9 percent for the CPI-U. The figures represent
an average annual increase of 4.28 percent for the CPI-U-RS
and 4.73 percent for the CPI-U; the average annualized difference
between the two measures is thus 0.45 percent. (See
chart 1.)

http://www.bls.gov/opub/mlr/1999/06/art4full.pdf

And yet he blithely claims a 4% difference per year, without any justification, either in October 2005, or 2006. I repeat, it's bullshit.

[Roland99]

11. It's pretty damned obvious in these charts

The problem you're seeing is that you're assuming the problem started in 1977 when it didn't, as evidenced by the charts.

[muriel_volestrangler]

17. But those charts are just made up by him, without explanation

he can't produce the figures behind them (unlike the BLS article). As ProfessorGAC says below, there's no basis for their estimates.

[Roland99]

18. They are not made up and are merely following CPI calculations before it was changed

The changes made during the Reagan/Bush years introduced substitution and a geometric weighting that gave more weighting to lower-priced, substitute items. That altered the CPI in a calculable manner. Undoing that is like pressing (Ctrl-Z) on your keyboard to undo the last change.

[muriel_volestrangler]

19. No, the BLS series using current methods allows for the substiution

and that what gave the 0.45% average difference. His 7% figure is fantasy.

10. Eliminating functional form bias and accounting for consumer
substitution within CPI item categories. The CPI-U-RS
uses estimates derived from the experimental CPI using geometric
means (CPI-U-XG) to account for both functional form
bias and consumer substitution within item categories.
In 1995 and 1996, improvements were made to the CPI to
eliminate functional form bias, an upward bias in measured
price changes occurring during the period immediately following
the introduction of new item samples into the CPI.17
The new seasoning procedures eliminated the bias for the
food-at-home categories in 1995 and for the other CPI categories
in mid-1996.18

[Roland99]

20. Right. And 0.45% for the 8 years since 1999 equals what? A 4% difference!!

Which is exactly what the difference is mentioned by Williams to compensate for the changes made after 1977 (the other being the 2.7% adjustment for the substitution alteration made in 1999).

[muriel_volestrangler]

21. Williams is claiming 4% *every year*

not a cumulative 4%.

[Roland99]

22. I take his 4% addition to the existing CPI-U as a one-time correction.

If the difference was 4% per annum the actual difference now would be 37%!

Changes estimated by the BLS show roughly a 4% understatement in current annual CPI inflation

current, not aggregated over the years.

[muriel_volestrangler]

23. The charts in post #11 show an annual 4% difference

"4% understatement in current annual CPI inflation"

The 2nd chart has a difference of about 4% in all recent years. The 1st one claims a difference of about 520 to 310 in the cumulative index - 67%.

[ProfessorGAC]

12. Too High

The best way to actually measure inflation is two index it vs. two values: The Poverty Level and the Median Household Income.

In this way, the direct cost of energy, medical, and education can be referenced, not in the overall fraction of GDP, but as an actual shift in expenditure for all goods and services needed to maintain the current lifestyle.

My MHI Index shows total inflation at about 6.6%. My PLI indicates it is about 8.5%. (Inflation always has a much higher impact on people with less.)

Sorry, but i disagree with how these folks have calculated these numbers.
The Professor

[Roland99]

13. These numbers (the 11.8%) is merely using the old CPI methodolgy from the 1970s.

Before substitution became a factor.

I'm sorry but steak vs. hamburger should not be a valid basis for determining inflation.

[ProfessorGAC]

14. I Know

I read the backround. And, i'm sorry, but you're wrong. First, they did it wrongly. Secondly, they used estimates with no basis in fact.


The impact of inflation cannot be determined by a dimensionless value apropos of nothing. The issue is how inflation affects buying power and the demand for new money. That's the point of measuring it.

Any other measure is indicative of nothing.
The Professor

[Roland99]

15. Then explain to me how substitution is valid.

To me, the cost of buying steak should always be compared to ... the cost of buying steak. Not to ground chuck or a soy patty. What's going to happen when I stop buying steak and only buy ground chuck? What's the next substitute below that?