Power & Market

Inflation: The Art of Moving the Goal Posts

There are two types of people who support the “inflation is low” narrative. The first type gets paid to push an agenda. The second type do not understand the Consumer Price Index (CPI) calculation. The methods behind the CPI will leave you with disdain for government intervention and a yearning for the free market.

On Wednesday the Bureau of Labor Statistics (BLS) released its monthly inflation data, a reading of 1.7% unadjusted CPI over the last 12 months. The importance of this data cannot be understated. Controlling price inflation is of paramount importance to Central Bankers. However, what if this economic data, upon which society relies so heavily, is completely false?

Starting with the CPI overview:

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a representative basket of consumer goods and services. The CPI measures inflation as experienced by consumers in their day-to-day living expenses.

Ambitious. Yet given the sheer amount of goods and services, customers, and infinite reasons for price changes, some might say such an idea is impossible to adequately measure, let alone useful to plan an entire economy.

Nonetheless, per the March 2021 release of February’s data, it begins when:

Prices are collected each month in 75 urban areas across the country from about 6,000 housing units and approximately 22,000 retail establishments… Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.

Of course, it’s not enough for the BLS’s 2,500+ employees to simply collect prices of random goods and services across the nation. The data must be compiled in some way:

In calculating the index, price changes for the various items in each location are aggregated using weights, which represent their importance in the spending of the appropriate population group.

Perhaps the most overlooked, or little understood, input is the “weights” the experts assign to each item. It is here where the massaging of data has no limits.

Reviewing Relative Importance of the data dissolves any notion of credibility in the calculation:


The total weights add up to 100 (think 100%). Last reporting period, Food made up 14.107 whereas Energy was just 6.349. And yes, each month the “importance” of each item changes.

Relative importance is nothing more than a plug. If Food was 12 and energy 8, no one could argue this was more or less accurate than, say, 14 and 6. Yet such a change would have a momentous effect on inflation results. Since it’s impossible to credibly quantify the level of importance of a good in even one person’s life, it’s absurd this is done for the entire country.

Consider the relative importance of the following:

  • Rent of primary residence – 7.836
  • College tuition and fees – 1.559
  • Health insurance – 1.202
  • Cable and satellite television service – 1.182
  • Medical drugs – 1.136

To believe college tuition, one of the largest expenses for millions of Americans, is slightly more important than cable tv is a strong indicator to the impossibility of the data.

The highly suspect CPI calculation is not so much a “conspiracy theory,” as it’s simply there are too many people depending on the low inflation narrative to stay afloat. The Fed, pension plans, unions, actuarial work, treasuries, etc. all rely on the low inflation narrative to avoid the negative consequences of our reality, including bankruptcy, or in the Fed’s case, the embarrassment of having to admit mistakes.

It becomes both freeing and unfathomable, that with just a few adjustments to a computer program, the “relative importance” of items, or the basket of goods themselves change. Understanding the calculation method shows the illegitimacy of the CPI. Its purpose is to mask the truth about the world. Life has never been more unaffordable for the masses, while world debt levels are at all time highs. We can solve the mystery by saying something most know anecdotally but are too afraid to admit as it conflicts with the data: The cost of living is terribly high and is rising at alarming rates. But “inflation is low,” only because our central planners push their narrative, and by extension, their power.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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