True Inflation Rates

[firehawkocean]

Hello all,

I was doing some research on the current inflation rate. The Federal government reports that inflation is 1.5% annually. However, governments have a long history of botching inflation numbers.

If you google "actual inflation rate", you will see many mainstream sources providing proof that inflation is somewhere between 5% (conservatively) to 9%. Do your own research, don't take my word for it.

So, I guess the big question for me is: Am I truly growing my wealth with index funds. Within the past couple years, considering taxes (I don't qualify for an IRA), my earnings would not keep up the a 5% inflation rate.

Any thoughts?

[kork13]

The trouble here is that there are many, many ways of measuring inflation. Even the federal government uses at least 5 different measures that I can immediately name off the top of my head.

As to the particular claim of a disparity between the official inflation data & "true" inflation values -- I did exactly as you suggested, and made a quick perusal of the web. Of the top 10 google hits that referenced "true" or "alternate" inflation rate (vs. the official federal inflation rate), 8 of them drew their research & figures from a single source -- a privately run blog, written by a single man, entitled "Shadow Government Statistics". The other 2 referred to a separate source, the American Institute for Economic Research. Not to claim "conspiracy theory" too quickly here, but typically, when an academic argument is made, it must be benched in the data from a variety of sources which, taken together, may present a logical position. Relying on a single individual's research seems a little ... shall we say... "unreliable" in my humble opinion... and not hardly "mainstream". Just because CBS or CNBC news writes an article about something doesn't make it factual or accurate. I could go on about this particular cognitive bias for a while, but I'll spare us all...

With that said, there are some legitimate problems with how the federal government tracks the US inflation rate. The prices of certain goods & services are clearly higher than the federal numbers would reflect, and the items the CPI statistics have considered ("basket of goods") has been a somewhat moving target over time. But these factors alone do not mean that the US will be subject to runaway inflation, nor that a reasonable mix of prudent investments will not be able to easily outpace the USD's overall inflation.

Suffice it to say that as Mark Twain reportedly put it: "There are lies, damned lies and statistics."

[firehawkocean]

I never said anything about "runaway inflation".

I am simply saying I believe it is very hard to believe the US government's rate of 1.5% inflation annually. Kind of reminds me of the botched employment numbers that have been in news headlines within the past couple months.

Consider the inflation amount of food over the past couple years. I have always believed that tracking the cost of beef, poultry, and pork is a very good benchmark. However, the midwest drought must also be considered.

[firehawkocean]

FYI-

Even mentioning the possibility of a "conspiracy theory" could be classified as a nominal fallacy. Either disprove or prove. There is not need to even hint at a label for someone's explanation, simply because you do not feel it is proven by numbers. To do otherwise shows an lack of confidence in your own ability to prove or disprove. By saying

'Not to claim "conspiracy theory" too quickly here'

you are using a nominal fallacy but simply not owning up to it.

P.S. - I do appreciate you responding to my initial post.

[bigdaddybus]

not a bad article here on the topic. I enjoyed reading the part about the Big Mac Index.

http://business.time.com/2013/03/12/if-theres-no-inflation-why-are-prices-up-so-much/

Perhaps the most telling indicator – albeit a slightly facetious one – is the Big Mac index, popularized by the Economist magazine. McDonalds hamburgers are available in many countries and their prices reflect the cost of food, fuel, commercial real estate, and basic labor. The price of a Big Mac, therefore, can be used to compare the economies of different countries – or serve as a bellwether of inflation in a single country. Since the recession ended, the cost of a Big Mac in the U.S. has risen from an average of $3.57 to $4.37, or 5.2% a year.

[jIM_Ohio]

Government inflation does not include energy costs, and the government uses other ways to measure it (if corn is too expensive, people will buy beans, not pay more for corn)

My experience is people absorb more inflation into their budgets than increase expenses. Income increases expenses more than inflation, IMO.

[Chris Leese]

The government's inflation rate stats do not include food and energy which in my opinion are 2 of the largest expenses for consumers. While there are a lot of different sources for the true inflation rate who knows what it really is. What I do know is that I see gas prices and food prices increasing (and or packaging decreasing so what you get for the same amount of money is less).

In my opinion, index funds in itself is not enough. Maybe look to diversifying a portion of your investments into inflation hedges (precious metals perhaps).