CPI Inflation Report — Why You Can't Trust it

The government's CPI Inflation Reports are widely distrusted and believed to underreport the true rate of inflation due to flawed methodologies, impacting the financial well-being of over 100 million Americans.

• Most Americans distrust the government's CPI inflation data, impacting millions of beneficiaries.

• CPI methodology is criticized for subjective measurements, substitution effect, hedonic adjustments, and theoretical housing cost questions.

• Underreporting inflation helps the government save money, but it erodes the purchasing power of citizens.

Americans across all political affiliations largely distrust the government's economic data, particularly the CPI Inflation Reports, with only 6% expressing complete trust. This distrust stems from a perceived underreporting of actual inflation rates, which significantly impacts critical cost-of-living adjustments for Social Security, federal retirement programs, VA benefits, and tax codes. The flawed methodology used in calculating CPI is a major concern, as it is believed to manipulate numbers to save government expenditure, ultimately eroding the purchasing power of citizens.

Public Distrust in CPI Data

• 00:00:22 A YouGov survey reveals that only 6% of Americans completely trust federal government economic data, a sentiment consistent across Democrats, Independents, and Republicans. The CPI Inflation Report is crucial as its reported inflation rate influences cost of living adjustments for over 100 million Americans, affecting Social Security, federal retirement programs, VA benefits, the tax code, and even minimum wage laws and labor contracts.

Flaws in CPI Calculation

• 00:01:34 The CPI Inflation Report's methodology is questioned for measuring the 'change in the cost of maintaining the same standard of living,' which is subjective and open to manipulation, rather than a straightforward change in prices. Key flaws include non-auditable sampling data, the 'substitution effect' which assumes consumers switch to cheaper goods, and 'hedonic adjustments' that remove price increases attributed to quality improvements. The CPI also relies heavily on theoretical questions like 'owner's equivalent rent' for housing costs instead of actual market data.

Deteriorating Data Quality

• 00:05:36 Concerns regarding the CPI's reliability and usefulness are recognized by the Congressional Research Service, citing issues with its methodology. A significant problem is the declining survey response rates, which are directly correlated with lower data quality, making the reported figures less precise over time. Suggestions for improvement include automating price tracking via the internet and disclosing data for public auditing to enhance transparency and trust.

Government's Incentive to Underreport

• 00:08:02 The government is believed to be incentivized to underreport inflation to save money, particularly concerning cost-of-living adjustments for the 74.5 million Social Security recipients and other federal programs. Underreporting inflation means lower payouts, reducing government expenditure and the need for increased borrowing, which would otherwise escalate interest payments. A comparison to the money supply growth rate, currently at 5% versus the reported 3% CPI inflation, further suggests a significant underreporting that compounds annually, effectively eroding citizens' purchasing power.