There are a few tricks that BLS adopted to lower inflation
numbers. One is geometric average instead of arithmetic
average, and that's just decreases the number mathematically.
The other one - yes, they hedonically adjust prices.
Some of that may be justified, however, the process is
obviously not very objective. For example,
if you had a 4 MB RAM chip for $100 4 years ago, and now
you have a 1 GB RAM chip for $100, BLS determines that
the price of RAM chip fell 250 times. Thus, BLS would determine
that computer prices fell enormously in the past 5 years.
BLS also uses substitutions - if the price of steak rises, but
the price of dog food falls, it assumes that you will have to
eat dog food and substitutes dog food for steak -g- You can read
all about the tricks to lower inflation numbers here:
shadowstats.com
John Williams has done a great job uncovering what BLS
actually does.
Look for 5 links on the right side under
"Primers on Government Economic Reports"
The blue curve on the home page is just the effect of using
the arithmetic average instead of the geometric average
of prices (Clinton era BLS revision). That is nasty - you
don't buy stuff geometrically, I can tell you that.
It's a pure mathematical trick - a geometric average is
always much lower than an arithmetic average. There is
a rigorous proof of that.
Now, you can look at wiki article on "Hyperinflation",
and read this:
Governments will often try to disguise the true rate of
inflation through a variety of techniques. These can include
the following:
Outright lying as to official statistics such as money supply, inflation or reserves.
Suppression of publication of money supply statistics, or inflation indices.
Price and wage controls.
Forced savings schemes, designed to suck up excess liquidity.
These savings schemes may be described as pensions schemes,
emergency funds, war funds, or similar.
Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.
None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation.
en.wikipedia.org
If you make a comparison of what's being done to US inflation
numbers and social security/medicare to that, you see scary
coincidences. For example, Fed stopped reporting M3 money
supply data in March 2006, and it is now growing in high teens. |
