Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Breaking Down Today’s Inflation

Economics / Inflation May 14, 2019 - 10:00 AM GMT

By: Rodney_Johnson

Economics I recently had dinner with my extended family. Afterwards, my parents mentioned they were surprised at how expensive the meal had been. It was a nice restaurant, but nothing fancy. It worked out to roughly $50 apiece, before tip. As we left, we separately climbed into our newish cars, which all cost more than $40,000. My brother-in-law’s pickup tops out over $50,000.

But don’t worry, the government tells us, there’s not much inflation.

We could have chosen a cheaper restaurant, and less expensive cars, which is exactly the point the government tries to make…

The government wants us accustomed to the chained consumer price index (CPI), where prices move higher and we’re chained to a falling standard of living.


The CPI measures the price of a consistent basket of goods. Any change is inflation. Chained CPI takes into account that when something gets more expensive, we could use less of it. To the government, this means we no longer suffer inflation because we quit buying the expensive item, or at least we had the opportunity to switch.

Never mind that it was the high price – or inflation – that drove us to make the change!

The “Logic”…

Using this logic, there can’t be any inflation until we move to abject poverty, buying only the most basic essentials available on the market.

As prices move higher, we’ll switch from steak to hamburger, then to pork, chicken, and finally beans. The government won’t count inflation until bean prices trend higher and we’ve nowhere left to go.

The Trump administration wants to use chained CPI when increasing the poverty rate, which would make the measure increase slower, thereby cutting the number of people who qualify for benefits such as supplemental nutritional assistance (SNAP) and Medicaid.

The Obama administration tried to do the same thing with Social Security cost of living adjustments… but was roundly condemned for it and backed off.

You might not think this matters to you, since you probably don’t receive government assistance; but don’t worry, they’ve already painted a target on your back.

Part of the 2017 tax reform was to index tax brackets to chained CPI instead of traditional CPI. This makes tax brackets increase slower than they would have, leaving more of your income subject to higher tax rates.

The game doesn’t stop there…

The government also adjusts the price of products to account for changes in quality or functionality. On its website, the Bureau of Labor Statistics (BLS) gives an example.

Suppose an old cathode ray television (CRT) cost $250 but isn’t available anymore. A new LCD television costs $1,250. You might think inflation should be 400%, but the government estimates the value of every aspect of the television from the bigger, better screen to the remote control, and how much “more” you get from the new unit.

Magically, they determine in their example that the price of the television actually fell 7%.

What would make this laughable if it weren’t so perverse is that the old television isn’t available anymore. Consumers don’t have a choice about which television to buy, and are stuck paying $1,000 more, even if they don’t want the new features.

The BLS notes that it makes adjustments both ways, sometimes increasing the price of goods or services for the purpose of determining inflation. I’ve never seen it, but I think they should.

Think about cell phones…

The government dramatically lowers the price of your phone because it has cool features that most of us will never use. But now we’re subject to 167 million robocalls per day, roughly 50% of all cell phone traffic. These calls impede our workflow by distracting us from our tasks. That should definitely count as higher inflation!

At the very least, we should keep track of all the adjustments the government makes to prices, comprising something of a standard of living index. The end result would be a percentage of the median family spending budget that the government makes disappear through mathematical calculations.

We can call the government-determined spending “fantasy,” and the unadjusted spending “reality.”

The difference between the two also has a name: “financial pain.”

It’s the pain when contracts allow for increased payments at the rate of inflation but don’t rise fast enough to cover actual spending. It’s the pain we feel in our paychecks that are supposedly rising faster than inflation, but won’t cover the cost of medical bills or tuition.

The solution is to increase our personal wealth through investments faster than the government rate or even personal rate of inflation. But that option isn’t available to everyone, which is why the government will need to find even more ways to take your money in the form of taxes in the years to come.

Instead of worrying about Greeks bearing gifts, beware of government bureaucrats doing math. It never comes out in your favor.

Rodney Johnson

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2019 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in