What Is The Real Inflation Rate?

Discussion in 'Media' started by hvactec, Apr 9, 2012.

  1. hvactec
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    hvactec VIP Member

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    The inflation rate, a hotly contested subject among people in the financial “know”. The Federal Reserve Bank, which reports on inflation rates and sets the interest rates based on this inflation rate is not reporting the entire story. The Federal Reserve, in their August calculations, stated the annual inflation rate is 3.77% – this number is not accurate. Why? A little history lesson for you:

    Inflation rates are based on Consumer Price Index, or CPI. Two basic types of data are needed to construct the CPI: price data and weighting data. The price data are collected for a sample of goods and services from a sample of sales outlets in a sample of locations for a sample of times. The weighting data are estimates of the shares of the different types of expenditure in the total expenditure covered by the index. Now, The Fed, after the “findings” of the Boskin Commission in 1996, does not include energy or food costs in their CPI calculation. Only the Bureau of Labor Statistics (BLS) includes those in their calculation of CPI. Since the BLS numbers are largely overlooked and therefore carry no weight, beyond what your pocket book says, is discarded. So The Fed sets the interest rates and calculates “accurate” inflation rates. Yeah, right.

    read more Inflation real rate set Fed CPI Energy food costs inaccurate | GreeneWave
     
  2. pinqy
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    pinqy Gold Member

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    The Fed hasn't used the CPI in years. They use the PCE excluding food and energy, an index produced by the BEA. And the BLS numbers for CPI are hardly overlooked...the CPI-U all items is what the press reports every month when they talk about inflation. Additionally, it's the CPI-W that's used for COL adjustments for Social Security and other Fed and state programs.

    The reason the Fed uses "core" measures is that food and energy are pretty volatile...they bounce up and down a lot. For long term forecasting, this volatility distorts the picture and "Less food and energy" gives a better picture of the underlying trend.
     

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