Thursday, March 27, 2008

How much inflation?

How much inflation is there really? Well, it depends on how you measure it. That said, the interesting thing is, that the methods how the official inflation statistics are being compiled have significangly changed over time. Specifically in the early Clinton years major changes have been set into place.

What these changes are and the political rationale behind them is well explained by John Williams in this article. John Williams runs the website Shadow Governement Statistics which is dedicated to esposing biased and manipulated government statistics (Huw made me aware of this site a while ago).

Concerning inflation he provides the useful service of computing CPI numbers by using the methods formerly in place. Thus, when computed the same as in 1990 (=Pre Clinton era CPI) actual inflation would be well over 7 percent (see the chart here). When computed the same as in 1980 it would be even as high as 11 percent. For the latter numbers and more see the Alternate Data Series.

So, any claims that inflation is historically low in comparison ring pretty hollow. After all, it depends on how you measure it.

John Williams was on CNN recently. His economic outlook was expectedly gloomy, but see for yourself . - Johannes

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