Wednesday, October 27, 2010

Stunning Chart: The Real State of Inflation

SHTFplan explains:
The CPI, or Consumer Price Index, is the official measure of inflation in the United States. The government utilizes the CPI as a way to make adjustments to interest rates for things like TIPS (Treasury Inflation Protected Securities) bonds and entitlement payouts like Social Security. According to the Bureau of Labor and Statistics, the CPI for the month of August was 1.1%, which means that prices were up just 1.1% over the previous year. According to Federal Reserve chairman Ben Bernanke, this is proof positive that there is no inflation to be had, and that we are, in fact, in a deflationary spiral...

On its face, viewing the government’s official numbers, the uninformed observer would assume that inflation really is under control, and that the immediate threat, as touted by mainstream economist is deflation. This has been used to justify what has been referred to Quantitative Easing 2, or QE2, leading to ever more money printing by The Fed.

As with all things “official,” however, the CPI lacks appropriate weighting for critical goods - essential goods - like food and energy.

The following chart from Casey Research shows just how skewed the “official” CPI figures are.


  1. If an item in the basket goes up, they geometrically weight its price to have less impact in the basket's composition.
    If the item goes up further, they'll substitute in an item that has had less of a price rise for the price-risen item.
    If the item's price skyrockets, they'll hedonically adjust the price rise for quality improvements.
    So beat them at their game, and invest in one of the chart items as an asset! My favorite since this summer is natural gas, which has been charted incorrectly, because it is substantially lower now than it was a year ago. Its NYMEX close was $5.07 on 10/28/2009 and it closed today at $3.74, a 26% loss! I'm just afraid it might start going higher before I get all my buy orders executed.

  2. The above chart is stunning. It clearly shows the FED is totally insane. They scream deflation while injecting trillions of digits into the system causing input prices to soar.

    I spoke with a hedge fund manager recently boasting about his 12% return so far this year. I told him his performance was a joke, my copper pipes in the basement trounced his funds performance. He thought I was kidding. It shows you the level of ignorance in the wall st. community.

    We are doomed.

  3. Both the Dow and S&P are up 13% y/y... meaning they've done worse than corn, and have only done a third as well as sugar.

    Your kitchen pantry has performed better than this 'recovery'.