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Inflation vs. CPI

July 3, 2013

According to the BLS, the current CPI aka inflation index shows a moderate 1.4% increase year over year. http://www.bls.gov/cpi/ Given these low numbers, Fed Chairman Bernanke has recently pointed out that inflation is too low and justifies further QE. In fact these are the Chairman’s words “There are a number of transitory factors that may be contributing to the very low inflation rate,” Mr. Bernanke said last week. “For example, the effects of the sequester on medical payments, the fact that nonmarket prices are extraordinarily low right now. So these are some things that we expect to reverse and we expect to see inflation come up a bit. If that doesn’t happen, we will obviously have to take some measures to address that. And we are certainly determined to keep inflation not only — we want to keep inflation near its objective, not only avoiding inflation that’s too high, but we also want to avoid inflation that’s too low.” http://economistsview.typepad.com/economistsview/2013/06/inflation-is-too-low.html .

The good people from www.Mint.com  (Family Matters: The Most and Least Expensive Cities to Run a household in America) have created their own “Family” CPI using surveys with 2 million people and their spending habits. Below, you can see their results regarding current price levels which seem rather realistic(click on image to enlarge).

Inflation

http://www.mint.com/blog/trends/family-matters-the-cost-of-living-in-america-0613/?display=wide

Looking at the true cost of living excluding recent tax increases, it is evident that the CPI created by the BLS and paid for by the tax payer  is fiction. What is more puzzling is why the Fed Chairman would rely on a fictional number by the BLS when reality is surely different. Whether he is not being truthful or his grasp of the real world is limited, it is disconcerting to find either attribute in a Fed chairman.

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