Quote:
Originally Posted by woj
That graph is a little misleading...
500% since 1971 = ~4.2%/year
and if you exclude the 70s when inflation was unusually high
and do 1982 onward the inflation is actually ~3%/year  |
The CPI (aka C. P. Lie) is not an accurate measure of inflation. What is inflation? It is the reduced purchasing power due to the devaluation of a currency.
The people doing the CPI have been cooking the books. If inflation is based on purchasing power then you need to measure what people spend the majority of their money on. Housing, energy and food are chief among these.
The CPI deliberately excludes the big money items and instead chooses to only track inconsequential items in the index. Especially those that haven't inflated much. How convenient. ;)
Even worse they substitute one item on the index for another. They find the point where one item starts to become more expensive and then substitute it with another item that is declining and make the swap at the point where they are equal. They reason that they can do this is because they are exchanging it with something of equal value.
Another trick they use is as follows. Let's say you buy a computer and it costs $500. Well 2 years from now a $500 computer is twice as fast and powerful as the earlier computer. So what they do is say that the computer has now dropped to $250. From a certain standpoint this is true, but the problem is that computer is no longer being sold and is not really considered an acceptable computer for average use anymore. They also do things like saying that the washing machine with the electronic controls is more advanced and so worth more, even though it is cheaper to manufacture than the analog dial equivalent.
For a more accurate estimation of the CPI take a look at :
http://www.shadowstats.com/alternate...flation-charts
The above is a measure of the CPI based on the earlier rules before they started cheating.
If you are wondering why they cook the books, it is because the government has liabilities that they need to pay out and the amount they pay out is based on the CPI. For example, pensions, social security, etc. If they can say that inflation is lower than it actually is then they don't have to pay out as much. Rather convenient from them, don't you think?
One of my pet peeves is when people say that inflation was x% last year. Inflation is different for every person because they spend different proportions of their money on different things. To find out your true inflation you need to track the difference in price of items between 2 dates and then weight them according to the % of your money you spent on each item.