Government Lies About Inflation

[pantom]

I know, this is about as much news as “Dog Bites Man”, but here goes anyway, from this link: http://www.prudentbear.com/marketsummary.asp (the text here will change in a couple of days, so if you want to read the whole thing, do it soon):

Today’s GDP release (mentioned above) provides us with an opportunity to communicate with our friends on Washington. Here’s a start: Dear Sir or Madam at the Bureau of Labor Statistics: In your press release penned 9/26, you indicated that gross domestic purchases, which measures prices paid by U.S. residents, increased 0.4% in the second quarter. You also indicated that that this is an annualized figure, although it’s sort of hard to tell because you need a monitor the size of Utah to see the whole darn press release. The question about this 0.4% figure that I’d like to ask is, can you please introduce me to the family who actually experienced this level of inflation? If you could introduce me, I’d like to ask them if they would provide me with a Powerpoint presentation on “How to turn an abandoned missile silo into a comfortable home.” I must assume that they are not only living in a missile silo that has been exempted from property tax and insurance hikes, but that they are also eating the left over emergency rations associated with such, otherwise how the heck could they experience 0.4% inflation, annualized or not, unless they are just sitting around in the bottom of giant tube eating dehydrated stew and playing gin rummy for paper clips? Sincerely, etc.
While we’re on the topic of Social Security, which I’m sure we were at some point, you can’t help but wonder if one of those shortened time horizon Social Security recipients appreciates the irony of their miniscule cost of living adjustment when they are the very segment of the population suffering from the most inflation. To wit: The price of a nursing home room is up 8% from April 2002 to this August, according to the Chicago Tribune. Everybody knows that drug prices are going through the roof, but I am ashamed to say that a 15 second search on the internet could not determine how far through the roof they are going. But if it’s verification you want, consider this: The state of Illinois was hit with a 15% increase in the cost of prescription drugs that it buys for its 230,000 state employees and retirees. They anticipate a 17% increase next year, which if you do math, comes out to be 15.6% higher than the 1.4% cost of living adjustment [in Social Security payments to retirees] mentioned somewhere earlier.
I bet they don’t appreciate the irony at all.

I’m more curious about how the government works up the nerve to publish such obviously wrong figures, rather than how they go about it. I’m sure they have ways that are certified by The Official Economists and Statisticians Clubs of America or something. How come we sit for this mendacity is yet another question.

[BKABBY]

The GDP report, while a worthwhile report in many other ways, is not regarded as a forerunner on inflation. Economists leave that to the CPI/PPI (Consumer/Producer Price Index). GDP shows us how much that the country is producing, and, in this case, that number is up. Up a very small amount, historically, but still up. CPI tells us how much consumers are paying. Perhaps this is what the article meant to refer to. Assuming that it was, CPI comes out every month, not every quarter, and 0.4% would be a huge increase, not a small one (because at the end of the year, you get about a 5.2% inflation rate. Ouch.) And as for individual things going up in price, that is far too small a measure of all of the products, in the entire country. Come back with some real statistics for inflation next time, and we’ll talk.

[pantom]

Excerpts from the GDP report, showing that what the article referred to was indeed a price index that measures inflation:

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.4 percent in the second quarter, 0.2 percentage point more than in the preliminary estimate; this index increased 3.4 percent in the first quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 0.8 percent in the second quarter, compared with an increase of 1.8 percent in the first.

                        Table 4.--Chain-Type Price Indexes for Gross Domestic Product and Related Measures: Percent Change From Preceding Period
                                                         [Percent; quarters seasonally adjusted at annual rates]
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       2000   2001   2002 III 99  IV 99   I 00  II 00 III 00  IV 00   I 01  II 01 III 01  IV 01   I 02  II 02 III 02  IV 02   I 03  II 03r
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
       Gross domestic product (GDP).    2.1    2.4    1.1    1.2    1.7    3.1    2.3    1.6    2.1    3.7    2.5    2.2    -.5    1.3    1.2    1.0    1.8    2.4    1.0

Implicit price deflators:
    GDP.............................    2.1    2.4    1.1    1.2    1.7    3.1    2.3    1.6    2.1    3.7    2.5    2.2    -.5    1.3    1.2    1.0    1.8    2.4    1.0
    Gross domestic purchases........    2.5    1.9    1.2    1.9    2.2    3.7    2.2    2.2    2.2    3.2    1.7    -.1     .4    1.2    2.3    1.2    1.7    3.4     .4
    GNP.............................    2.1    2.4    1.1    1.2    1.7    3.1    2.3    1.7    2.1    3.7    2.5    2.2    -.5    1.4    1.2    1.0    1.8    2.4    1.0

From here: http://www.bea.doc.gov/bea/newsrel/gdpnewsrelease.htm

[friedo]

So what you’re saying is that we should get all pissed off because some guy’s anecdotal evidence doesn’t agree with the statistics put out by BEA?

[pantom]

friedo, if you’re in Queens, that means you do know that the subway fare is 33% higher today than it was a year ago? In this world without inflation?
Forget some guy’s anecdotal evidence. Go down to the corner and wait for a bus, if you want to see inflation in action.

[Bosda_Di_Chi_of_Tricor]

Gas is going through the roof, clothing costs are up, health care, food…

Something stinks, and these figures are it.

[Squink]

If you could introduce me, I’d like to ask them if they would provide me with a Powerpoint presentation on “How to turn an abandoned missile silo into a comfortable home.”

It’s not Powerpoint, but here’s a nice one:
The Most Unique and Secure
Real Estate In The World

Entire steel superstructure hangs from gigantic spring suspension system designed to absorb shock of a direct nuclear hit.
Unlimited Possibilities!!!
…
Low Taxes

[Squink]

If you could introduce me, I’d like to ask them if they would provide me with a Powerpoint presentation on “How to turn an abandoned missile silo into a comfortable home.”

It’s not Powerpoint, but here’s a nice one:
The Most Unique and Secure
Real Estate In The World

Entire steel superstructure hangs from gigantic spring suspension system designed to absorb shock of a direct nuclear hit.
Unlimited Possibilities!!!
…
Low Taxes

[Zenster]

I wouldn’t mind inflation so much, but why does it have to hit right now when prices are already so high?

[Brutus]

*Originally posted by pantom *
**friedo, if you’re in Queens, that means you do know that the subway fare is 33% higher today than it was a year ago? In this world without inflation?
Forget some guy’s anecdotal evidence. Go down to the corner and wait for a bus, if you want to see inflation in action. **

Most. Anecodotal. Anecdote. Ever.

[friedo]

*Originally posted by pantom *
**friedo, if you’re in Queens, that means you do know that the subway fare is 33% higher today than it was a year ago? In this world without inflation?
Forget some guy’s anecdotal evidence. Go down to the corner and wait for a bus, if you want to see inflation in action. **

It may be 33%, but it’s also 50 cents.

The fare increase came after a period of nearly nine years of the same fare, followed by an average decrease due to Metrocard discounts.

But that’s irrelevent, since inflation information comes from the free market, not poorly run, corrupt state monopolies like NYC Transit.

[hawthorne]

What BKABBY said. Implicit price deflators are things economists are interested in. They are not measures of inflation experienced by consumers. That’s the CPI. That measures the change in the price of bundle purchased by a typical consumer. It includes such stuff as imports. The various IPDs are used to deflate expenditure across various categories to enable comparisons of quantities over time.

What friedo says is bullshit too. Of course fare increases for public transport matter for inflation as experienced by consumers.

[pantom]

Uh, thank you, Brutus.
You too, Hawthorne, as I figured the guy was probably just pulling the figure out of the air so he could have something to beat up on.
It is true, though, and I have had this conversation with my parents and my mother-in-law, that inflation hits old people the hardest because it’s the stuff they buy that has been going up the most. So adjusting Social Security payments based on some average rate of inflation just doesn’t do it for people on Social Security.
And Squink, that silo home actually looks viable. Bit on the expensive side, though, from what I can figure out.