Saturday, February 4, 2012

Why The Fed Lies About The Inflation Rate

Last year the Federal Reserve declared that the U.S. inflation rate came in at 3.16 percent.  The data used by the Fed is the Consumer Price Index (CPI), the figures coming from data collected from the Bureau of Labor Statistics.

In 2010 the Fed declared an inflation rate of 1.64 percent and in 2009 the fed prices actually declined one percent!

The average consumer might wonder, how is this possible?  I certainly did. Here's why:  Grocery prices have increased by over 20 percent in the last two years alone.  Has anyone else noted the spike in grocery shelf prices?  Beef, milk, pork and chicken prices have all spiked.   One sees similar price hikes in flour, sugar and coffee.  And so many food manufacturers have done their best to disguise their price hikes by selling you a smaller quantity container for the same price so that you may believe they too aren't raising prices...but indeed they are!  And how about gas prices at the gas pump?  Gas prices have gone from $2.50 per gallon in 2008 to $3.50 in 2011.  My water, gas and electricity companies have all raised prices over 15 percent in the last two years!

So, how does the Federal Reserve get away with telling us our consumer prices have not risen as much as they actually have?  And why would they lie to us?

Well, to answer the first question, we have to look at the Consumer Price Index (CPI) itself.  You see, the CPI is actually broken down into two separate components.  One component, the component the Fed uses to determine inflation does not measure the increased costs of food and energy.  The second component of the CPI is called the Core CPI and this does indeed measure the costs of all products and services, to include food and energy.

So why does the Fed ignore the Core CPI, which represents the real measure of what Americans are actually paying for goods and services?  Because, folks, if they did, you would be up in arms, and perhaps marching on Washington in protest of a federal government run amok.

Let's look at what would happen if the Federal Reserve actually used realistic price data to determine our annual rates of inflation:

1)  First of all, everyone receiving a government check, whether it be federal and military retirees, social security and welfare recipients, all would be due, by law, an increase in their pensions equal to the actual rates of inflation.   While perhaps fair to recipients of federal entitlements it would add another trillion dollars or so to Obama's already massive annual deficits.

2)  If the Feds actually declared an inflation rate closer to the actual 6% annual rate, rather than their "3% lie", the Federal Reserve would be under so much political pressure to stop printing worthless currency and to raise the interest on treasury borrowing to a corresponding 6%, thus increasing the federal government's cost of borrowing from 3 percent to 6 percent!  Since the feds are already spending 43 cents of every tax dollar to pay interest on our $16.5 trillion dollar deficit, the percentage of our tax dollars going to service debt would soar to 80% of every tax dollar collected just to pay the interest on our debt!  And of course our deficit would soar completely out of control and bring about a national default as has happened in Greece and Italy and threatens Portugal, Spain and Ireland.

3)  If the Feds told you the truth on inflation, and operated on the truth, you can readily see that all of these government entitlements, all of the Obamacare, all of these unemployment checks now extended to 36 months, all of the welfare spending, all of the Medicare and Social Security spending could not happen!  Not unless the feds can figure out how to maintain current spending levels on the remaining 20 percent of tax dollars remaining after paying interest on our deficit!

4)  Finally, if the American people ever actually realized that the actual rate of inflation is higher than the feds report, if they actually realized that their paycheck is buying less and less each year, they just might go out and vote those responsible for this mess right out of office!

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