The United States Labor Department released data Wednesday highlighting that the United States consumer prices declined for the first time in more than a year in August. The federal department said the consumer price index (CPI) fell 0.2 percent due to a drop in energy prices that offset increases in food and housing costs.
Overall energy prices fell as gasoline prices plummeted 4.1 percent, food prices jumped 0.2 percent and rents slightly swelled 0.2 percent.
In the 12 months through August, the core CPI increased 1.7 percent, down from July’s 1.9 percent. It should be noted that the Federal Reserve’s target inflation rate is two percent, which means that central bank officials believe they can incite more stimulus and keep key interest rates low because of the lack of inflation.
However, the important question to ask is: can Americans really believe the CPI numbers? Hardly.
Here is what William Anderson of the Mises Institute wrote in 2001 that dispels the CPI:
“What, then, is the real rate of inflation if the CPI is inaccurate? The truth is that there is no good way to gain a true measure of inflation, especially in this era when the Federal Reserve System is flooding the economy with new dollars. All we can say for certain is that inflation, with all its evils and distortions, has become what seems to be a permanent part of our economy.”
To purport that inflation isn’t apparent in the U.S., and in other developed countries as well, is just a tad disingenuous. We have reported numerous times on the various published reports of inflation, whether it’s in food, clothing, energy or housing.
Just last week, we reported that U.S. milk futures rose to a record high and will thus cost the consumer more money for a carton of milk in addition to other grocery items, including butter, cheese, pizza, cakes, pastries and other baked goods. With the holiday season just around the corner, this will burn a serious hole in many consumers’ pockets.
Economic Policy Journal does a great job outlining what has transpired in the past 12 months: 2.9 percent increase in the food at home index; 8.8 percent spike in meats, poultry, fish and eggs index; and 0.2 percent jump in the cereals and bakery products index.
The cost of apparel may have dropped in recent months – this can be attributed to cheap labor and lower manufacturing costs due to technological advancements – but food costs have soared. In other words, the price of nice-to-haves has slightly dropped, while the price of need-to-haves has soared to the heavens.
What would be the best way to really judge consumer prices? Perhaps the McDonald’s Big Mac Index (BMI), which was first created by The Economist in the 1980s and looks at the cost of McDonald’s signature creation across the globe. The chart below illustrates the difference between the government-produced CPI and the BMI.
Here is what Peter Schiff, president of Euro Pacific Capital, wrote last year:
“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.”
Next time the government claims there is no inflation then just look at your grocery bill and you’ll realize that these bureaucrats really have no idea what’s transpiring in the economy.
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