Every new menu at a restaurant means higher prices along with the “new and exciting” entrees and appetizers. Why else would cash-strapped operators pay to print shiny new ones?
Despite all this anecdotal evidence the government’s Bureau of Labor Statistics (BLS) tells us each month that the Consumer Price Index (CPI) is barely above neutral year-over-year. It all comes down to how you define "inflation."
Normal humans think of annual inflation as the cost of a basket of goods and services today versus the cost of the identical basket one year earlier. That makes intuitive sense. It is not what the BLS measures and reports on.
If you have time and want full details, read the fine print until your eyes glaze over. The CPI-U described is said to represent the index for all urban consumers.
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Core CPI specifically excludes food and energy costs. Readers who don’t move, eat or buy any products that require transportation should make similar adjustments when determining their own cost of living.
Rapidly rising income, property and sales taxes are not included in any of the BLS inflation numbers. They certainly negatively impact your true cost of living. I traveled to Iceland last September. Part of that country’s post-2008 crisis management was the imposition of a 25.5% VAT (value added tax) on almost every retail purchase. Paying that much in sales tax means each Krona can buy only 79.7% of the currency’s face value in real merchandise or services. Money unspent is not subject to this VAT, but money never spent is the same as not having money at all.
Iceland imposed currency controls during their bank failure. Citizens cannot move their wealth outside of the country, nor buy non-Kronur denominated securities, without prior government approval. In practice their people will either pay that prohibitive 25.5% tax or forfeit using their own already taxed savings.
The same plan, with slightly lower rates, is in effect all over the Eurozone. When VAT rates move higher the real cost of living creeps too, even if government agencies fail to acknowledge it. Some foolish Americans have been pushing for a national sales tax here at home. Giving politicians more funding just allows them to do more damage. Deficits and spending do not drop.
"Temporary" taxes never go away. The June 29, 2013, Philadelphia Inquirer recounted the story of the Johnstown Flood Relief tax of 1936. A 10% surcharge on all alcoholic products was levied to help the townspeople. 76 years later the tax has risen to 18% and is built in to all Pennsylvania liquor sales. None of it is earmarked for Johnstown anymore. The hidden tax is part of the retail price that then becomes subject to PA’s state level 6% sales tax. Final damage after compounding both taxes equals 19.08%.
The price of booze is not included in official inflation lists even though government policies may be driving us to drink.
Excluding food, energy and taxes from core CPI allows the BLS to understate increases in the true cost of living. After the high inflation years in the late 1970’s our leaders decided to change the rules about how they calculated CPI. This happened again in 1990. Each time the BLS manipulated the measurement techniques with a clear goal of downplaying the extent of cost increases. This kept Americans dumber but happier while lessening the government’s need to increase COLA (cost of living adjustment) to employees and retirees.
The excellent ShadowStats website provides monthly updates on what CPI would read today if the rules were still the same as they were in 1980. The difference is startling. The alternative inflation rate probably squares more with your personal experience than the officially espoused numbers do.
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It gets worse.
The BLS uses other tricks to lower reported inflation rates. The ‘substitution principle’ says that when the price of a particular item, say rib-eye steak, goes up then consumers will switch to lower-priced alternatives like ground beef. Under that scenario a 20% rise in rib-eye steak prices disappears completely. The same idea could negate a price increase for automobiles. If Lexus or Porsche MSRP’s go up 30% you could simply buy a Kia or Hyundai instead. Once again no inflation adjustment would be required.
Until consumers are down to walking to work while subsisting on just cat food and water, the substitution principle allows the BLS to call CPI anything they desire.
Our leaders also use improvements in quality while maintaining level pricing as an excuse to call the procedure "deflationary.". The first iPads were crude by today’s standards but cost $600. The newest iPad with Retina Display still costs $600 but packs more power and features. The BLS counts that as a drop in price even though customers paid the same dollar amount.
A real world consumer poll showed very large increases in the out-of-pocket cost of living over the period from Q1 2001 through Q1 2013. The official change in CPI is almost invisible over that same period.
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If you pay your own electric and tuition bills, buy groceries or pay for your own health insurance you’re painfully aware that the CPI and CPI-U numbers are bogus.
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Unfortunately, this situation is unlikely to ever revert back to honesty. Washington D.C. has a vested interest in keeping the public uninformed of the truth.
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