McDonald’s Big Mac tracks inflation better than government CPI

It was recently reported by Economic Collapse News that the government is going to change how the Gross Domestic Product (GDP) is calculated because the numbers don’t reflect kindly on the efficacy of government stimulus programs.  Another way the government likes to fudge the numbers is by changing the way the Consumer Price Index (CPI) is calculated so they can understate inflation.

In Peter Schiff’s latest commentary he uses the Big Mac Index to draw a comparison:

Since the late 1980’s, The Economist Magazine has compiled something called the “Big Mac Index,”(BMI) a global survey of the cost of McDonald’s signature hamburger. Although the index is primarily used as a means to compare purchasing power parity around the globe, it also can be used to track the prices of Big Macs in the U.S. over many years.

From 1986 to 2003 the U.S. BMI rose roughly in line with the CPI. Although the burger occasionally rose faster or slower, over that 17 year period both indexes increased by about 68% (or about 4% per year). But from April 2003 to January 2013 the CPI Index is up just 25% percent (from 183.8 to 230.28 or about 2.5% per year) while the BMI is up 61% (from $2.71 to $4.37 or about 6.1% per year), or more than twice the official inflation rate.

Here’s the chart showing the comparison:

BMI vs CPI

So what accounts for the huge difference between the CPI and the BMI?  Has the Big Mac changed in quality or size?  Or has the government just changed the yardstick by which inflation is calculated?  Obama has also proposed using a chained Consumer Price Index for Social Security benefits which would understate inflation even further and lead to cuts to beneficiaries.

Peter Schiff has a new video blog about these changes and the proposed plan to stimulate the economy.  Long story short: the Keynesians want more debt and spending by the government.  Schiff explains why it won’t work and will actually make things worse.

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