Calculating the inflation rate using “a bundle of consumer goods” the government has always gotten this wrong. For a start, their CPI (Consumer Price Index) never takes into account shortages of components and, more critically, local variations in costs because of staffing, supply, or even need. The computer chip shortage for car manufacturers, which causes a shortage, which causes a supply demand, which raises the cost of second hand cars by as much as 25% is hardly reflected in the government bragging that they have kept inflation to “below 1.5%.”
What items are in this “bundle” of goods upon which they calculate inflation? Go ahead and guess because no one will tell you exactly what they are. Several investment websites describe that basket in vague terms (Why? Because they do not know). “The basket of goods includes basic food and beverages such as cereal, milk, and coffee. It also includes housing costs, bedroom furniture, apparel, transportation expenses, medical care costs, recreational expenses, toys, and the cost of admissions to museums also qualify. Education and communication expenses are included in the basket’s contents, and the government also includes other random items such as tobacco, haircuts, and funerals.”
In short, some government employee statistician shoves in random numbers and comes up with a number they hope works. But is that fair? Shortages cause rampant inflation (check the housing market currently). Airlines, swamped by sudden desires to fly are understaffed and swamped, so they cancel flights and ticket bargains disappear. But somehow, that’s not in the “basket.”
Let’s take a box of cornflakes as an example. Has the price gone up significantly? Not really. Yes there are some shortages, but the price has remained stable… except that there is now less in the box, something the consumer may not notice as the box is about half full. Did that affect the CPI? Nope. And what about gasoline? The government says they calculate the price of gasoline in the CPI on a “nation-wide basis” but don’t take into account local price hikes. Name me one place on the Eastern Seaboard where gasoline prices didn’t spike.
Look, all of us try and manage the money we have, stretch it out. But that budget you made and try to stick to? Throw it away, inflation is back with a vengeance. Be prepared, it’s going to get much worse.
Why? Let me explain. The Federal Deficit was hammered for the past 5 years, tax breaks for the most wealthy, overspending everywhere else. In 2016 it was $587,000,000,000 more than tax revenue. By 2021 it was $1,930,000,000,000, almost four times as much. How do we pay for that? The U.S. Government issues bonds — basically loan paperwork — that foreign countries and the really wealthy buy up because there is interest and a federal guarantee for the cash outlay.
Three times in my life the government has balanced the budget and debt by paying off those bonds and loans. How? By bringing back inflation. When did this happen last? Remember Clinton paying off the debt? How did he do that? He raised much more money from taxes because people were suffering from rampant inflation under Reagan and Bush and demanded pay increases at work and then paid more cash to the IRS.
Want proof? I bought a house in 1989 for $350,000 that had been sold about 6 years earlier for $65,000. When I sold it for $1,350,000 in 2007… same house (well, we did improve it), same rural county, same so-called “low CPI.” Oh, and property taxes? In 1989 the taxes were under $350 a year. Now they are over $16,000. So don’t let anyone tell you the CPI is fair and correct. Not ever. And it is currently so far out of whack to be meaningless.
Peter Riva is a former resident of Amenia Union. He now resides in New Mexico.
‘Square Quilting painting' by ransomeAlexander Wilburn
