Monday, May 18, 2015

Fifty Shades of Economics: How Governments Fudge the Price Inflation Number

Dr Pippa Malmgren, a former Plunge Protection Team member, explains how governments fudge price inflation numbers.


1 comment:

  1. Lies, damned lies, and statistics. (Disraeli)

    That video sounds sort of like goegraphical weighting, except she's right that the more pricey product will not be eschewed for something less expensive. Both will be purchased. Some BS moves from our BLS here in the states are intervention analysis, seasonality adjustments and hedonics.

    One of my all-time favorites was introduced during the Clinton years, when the Arkansas president yearned for less inflation, so the BLS changed the way it recorded housing price-rises by tracking how much a house would rent for, instead of the actual cost of a house. (This is how housing prices could rise at 14% a month during the bubble years yet not show up in the inflation numbers.)

    There are many political advantages in having low inflation numbers, two of which stand out as more important due to other calculations being involved. The first is the "deflator", which is used to factor out inflation in order to divine a more accurate gauge of economic growth in the country. If you keep the CPI low, it won't adversely affect the GDP numbers to the downside. What politician wouldn't want that? Second is the affect of inflation numbers on cost-of-living raises for social security recipients. Higher inflation means paying out more money. What politician can afford that?