In the #News #Inflation #CPI #Crisis

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“If you don't read the newspaper, you're uninformed. If you read the newspaper, you're misinformed.”

“Whenever you find yourself on the side of the majority, it is time to reform (or pause and reflect).”

― Mark Twain



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It was likely higher than that.

The New Consumer Price Inflation (CPI) (After 1996)

The Old Consumer Price Inflation (CPI) less 1996 adjustments

The 2020 inflation spike was much higher than the rate of change seen in the 1970s and 1980s that ended the Carter Administration in 1980. Still surprised the Biden Administration lost? A big chunk of the population, especially those following mainstream media and official polls, are likely to reply, yes! The 2024 election was not a surprise to anyone listening to the invisible hand, which from our point of view is not many.

The 11/14 US Consumer Price Index (CPI) from the US Bureau of Labor Statistics (BLS) has traders, investors, and nearly everyone on Main and Wall Street scratching their heads. How does the CPI contract so rapidly given the stagflationary backdrop? It doesn't.

Inflation reported today no longer compares to data after the early 1980s, and does not reflect reality like it once did when the series was created in 1921. Methodologies that include geometric weighting, substitution, and hedonics favor price reductions and significantly understate price increases. The original design of the CPI, a time series that helped businesses, individuals, and the government consider inflation in their financial planning, died after the Boskin Commission in 1996 made the CPI unrecognizable to the original series.

Simply put, the US CPI no longer reflects reality. The minority must recognize the biases and remove them from the decision-making process. Statistical techniques such as geometric smoothing, substitution, hedonics, and additional new methodologies continue to overstate and understate deflationary and inflationary trends, respectively.

Hedonics, for example, represents a statistical fantasy. If the price of a car increases from the previous year, the BLS likely adjusts this price increase downward to reflect the pleasure of owning and driving a new car. Green plastics cost more? The CPI likely does not recognize them if people enjoy the benefits of a cleaner environment.

If you're shaking your head in disbelief, don't worry, it gets worse. The price of oil, gasoline, and food are rising fast? The BLS has your back, the core-CPI strips them out of the calculation.

An under-reported CPI also overstates real growth. Gross Domestic Product (GDP), the US national income, is often reported in Real GDP. Real GDP, or inflation-adjusted growth, is derived from price deflators influenced by the CPI.

Lowering the CPI accomplishes the following:

(1) Social Security Payouts based on CPI
(2) Union Contracts are based on CPI
(3) Commercial contracts often contain cost adjustments based on the CPI


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* A new methodology change appears to be using healthcare profits rather than prices. Whose healthcare premiums fell 34% last year?

Goldman Sachs notes there was some kind of change to data sources and other "methodology changes"

Still trying to better understand what the change was.

PS: If your health insurance costs fell 34% from last year, please hit me up .. love to hear your story! https://t.co/uwMogQOjvo

— Brian Sullivan (@SullyCNBC) November 14, 2023

Follow me on 𝕏 or Facebook for further discussion.

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