Go Back

Real Inflation

by Lobo Tiggre
Tuesday, May 11, 12:00pm, UTC, 2021

Whatever statistical flaws the US Consumer Price Index (CPI) may have, the biggest flaw is the very idea of tasking the government to report on itself on this central, critical regard.

This really is quite like asking the fox to guard the henhouse. I’ve never heard anyone express surprise—not even the US Bureau of Labor Statistics’ (BLS) defenders—that CPI numbers are so often at odds with the rising cost of living Americans experience.

Government skeptics like me suspect that CPI numbers understate the rising cost of living by design.

Austrian economists say it’s a mistake to even call the CPI an inflation statistic. Strictly speaking, inflation is a monetary phenomenon. What happens to consumer prices is but one consequence of real, underlying, monetary inflation.

But the Austrian view is a minority, even among economists. The US government, most investors, and most people use CPI data in their decision-making.

These days, a key point is that computer algorithms used by commodities traders from moment to moment include monthly CPI numbers in their trades.

So, even if we believe CPI numbers are bogus, we can’t ignore them—not if we want to understand what’s happening to markets and invest accordingly.

When I say things like this, most people I know agree. But many still want to know what real inflation is, and ask what we could use that might be better than the BLS’s CPI.

It’s no use asking the Fed and other government insiders. They’ll just point to “core CPI” or personal consumption expenditures (PCE—the Fed’s favorite), or other stats from the BLS or Bureau of Economic Analysis (BEA).

The most well-known private-sector alternative is John Williams’ Shadow Government Statistics service. John publishes a version of CPI that’s based on the way the BLS used to estimate it itself, before controversial changes started in the 1980s. John’s numbers are controversial themselves now, subject to some methodological criticisms. But even if we take John’s side on this, accepting the BLS’s former numbers is still asking an older fox to guard the henhouse.

There’s also David Ranson’s approach, based on gold, silver, and platinum. I’ve written before that the gold-dollar exchange ratio can be seen as a measure of inflation over the very long term, so I’m sympathetic. But metals prices are subject to many factors, and they can fall even as people’s cost of living is rising. And obviously, using metals prices as inflation in calculations to project metals prices is problematic—especially for high-frequency futures traders.

I've heard that PriceStats tracks CPI closely, but in real-time. That's helpful for estimating real rates without the monthly time lag of  CPI, but the close correlation with CPI makes me suspicious of its accuracy.

So what’s a better alternative?

I’m sorry to say that I don’t have one.

It’s too big a job for a small shop like mine to take on. I’d love to see some large, private research agency like the Rand Corp. step up to the plate.

Meanwhile, I do have one simple suggestion that We The People could take to The Powers That Be (TPTB):

Instead of removing food and energy from core CPI or PCE, leave them in on a 12-month rolling-average basis.


Because TBTB do have a valid point about highly volatile prices such as energy moving inflation numbers too much on a monthly basis. When oil prices went negative in March of 2020, the impact on CPI for that month made the whole basket of goods less representative of what consumers were experiencing that year.

But people literally can’t live without these things. Obviously, excluding such absolutely core aspects of the cost of living such as food and energy makes no sense. Food, housing, and energy are the core.

So they should be left in. Doing so using a 12-month rolling average smooths out both seasonality and temporary volatility. It would make CPI lag more, but it would still change from month to month—and it would include the core costs of actual living.

Of course, I’d rather fire TPTB and abolish the BLS, BEA, and a host of other counterproductive alphabet agencies. Alas, my preference is such a tiny minority, it’s a nonstarter in today’s world.

Working within the system, pressing TPTB on this simple tweak could be helpful regardless of what they do about it:

  • If TPTB adopt my 12-month rolling average suggestion, CPI remains flawed, but materially less so, and more useful.
  • If they don’t, it shows that they really have no interest in a more accurate and useful measure of inflation.

Not that I need more evidence of the latter… but it could help advocates of fiscal sanity make their case with mainstream audiences.

That’s my take,



P.S. To be kept abreast of more dangers, opportunities, and issues affecting investors, please sign up for our free, no-spam, weekly Speculator’s Digest.


Think. Speculate.

Facts and insights to navigate the markets. Delivered FREE.

  • Free digest with fresh investment-related news and ideas on a daily basis.
  • Free reports on investment ideas for speculators.
  • Honest, unbiased trend analysis
  • Heads up on events, appearances, and other educational opportunities.

Forever Free subscription

  • Monthly Newsletter Subscription
  • Requests
  • Free Access to Blog
  • Books and More
My Take

$500 (SAVE: $100) for 1-year subscription

$50 for monthly subscription

  • Field Trip Invitations
  • Free Educational Media
  • Free Access to Blog
  • Books and More
  • Monthly Newsletter Subscription
  • Conference Invitations
The Independent Speculator

$3,000 for 1-year subscription

$1,000 for quarter subscription