What Should You Believe? Government Stats or Your Own Eyes?

Published May 17, 2012

Price inflation is running at an annualized rate of 4.8 percent, according to official data released Friday by the U.S. Bureau of Labor Statistics.

That is more than double the Federal Reserve’s target rate of 2 percent annual inflation. And as millions of Americans have come to learn since the government 40 years ago began playing games with this and other economic statistics to make things look better than they really are, there is good reason to take this latest report with a shaker or two of salt. Even if we accept the figure at face value, there are good reasons to scoff.

For instance, at the American Institute for Economic Research, the economists strip out seldom-purchased big-ticket items that the Bureau of Labor Statistics leaves in its calculations. The AIER’s Everyday Price Index studies the prices of things people buy daily, weekly, or monthly, such as groceries, prescription medicine, telephone and cable services, etc. That’s the inflation rate that most directly affects people.

The Everyday Price Index shows inflation climbing 8.1 percent over the last year. At an 8.1 percent rate of inflation, the purchasing power of the dollar falls by half in nine years.

On March 15 the Associated General Contractors of America reported, “The cost of construction materials accelerated dramatically in February.”

“Prices for a wide range of construction inputs rose sharply in February, threatening to put contractors out of business and leave public projects underfunded unless materials can be ordered before prices jump further,” said Ken Simonson, the association’s chief economist, in a statement. “Contractors had finally begun to cover the modest increases of the last few months but now many of them are facing increases they may not be able to afford, given the industry’s meager margins.”

Have you filled the gas tank on a car or truck in the past few days? USA Today reports the national average price is up 31 cents in the past month and tops $4 a gallon for one-third of the nation’s drivers. And we’re not yet in the peak driving season, when gas prices for the year typically top out.

But our government overlords exclude food and energy prices from their “core” inflation calculations. Core inflation for February rose just 0.1 percent, the feds cheerily informed us.

One year ago, during a hearing of the House Subcommittee on Domestic Monetary Policy, former Morgan Stanley managing director and L. E. Lehrman & Co. founder Lewis Lehrman testified that if the consumer price index were calculated the way it was in 1980, it would show inflation at 8 percent. This when the government was reporting a 3.2 percent rise in the Consumer Price Index.

Since the start of the financial crisis in 2008, the Federal Reserve has created trillions of new dollars. There’s a reason rare gems cost a fortune and pea gravel costs almost nothing. The rarer something is, the more valuable it is. This applies to money as well as to stones. Unfortunately, few of the nation’s top government officials seem to realize this or care.

President Richard Nixon more than 40 years ago unilaterally ended any ties of the dollar to gold, enabling the “printing” of money from nothing. The result was soaring inflation, wage and price controls, and the 1970s “stagflation” in which the nation endured high inflation and low economic growth.

Nixon was also the architect of the “core inflation” measure, by having his Labor Department exclude food and energy prices. Since then the inflation measures repeatedly have been tinkered with.

In judging the level of inflation, we can believe the government’s statistics or our personal experiences. Given the manipulations of inflation measures since the 1970s, it seems far safer to trust the evidence of our senses.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute in Chicago.