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Government to Use “Improved” CPI

I must be a little dense because I always felt that our Government’s CPI measures were biased downward.  They constantly shift the basket of goods (hey, if the cost of steak goes up, you can substitute it with chicken for half the price!) and make adjustments to compensate for increases in technology sophistication (that iPhone 2 doubles your productivity right?).  Of course I am exaggerating, but a couple examples of proof:

Shadowstats tracks our current measure of CPI versus the way it was calculated back in 1990

MIT has been collecting daily prices of goods on the internet

Neither one of these charts shows me that the CPI is overstating inflation.

Now let us get to the point for this post which was sparked by a political push to change the measure of CPI in entitlement benefits:

“Four senior congressional aides said lawmakers are discussing using an alternative yardstick to gauge inflation, known as the “chained consumer price index,” to determine annual cost-of-living adjustments for millions of Americans…

Advocates say the change is needed because the government’s current measure of inflation overstates how quickly prices rise.

There hasn’t been any economist anywhere that says we shouldn’t do that,’ said Senator Tom Coburn”

Now I have said before that entitlement benefits definitely need to be cut (because we cannot afford them), but I do not like it when the reason is laced with lies.   If you think about the poor individuals on social security, what are their biggest costs?  I would guess that they are rent, utilities, food, and medical costs.    I will rehash a few points from my previous post on May 31:

Rent:

U.S. apartment rents climbed 5 percent in the 12 months through April, according to research company Axiometrics Inc. Effective rents in the first quarter, or what tenants actually paid, rose in 75 of the 82 markets tracked by data provider Reis Inc., which said the average was up 2.5 percent from a year earlier to $991 a month.

Groceries:

Retail food prices will jump more than the US Department of Agriculture’s estimate of 3 per cent to 4 per cent this year, said Chad Hart, an economist at Iowa State University.

Companies will pass along more of their higher costs for the rest of the year, said Bill Lapp, a former ConAgra Foods chief economist. Groceries and restaurant meals rose 2.4 per cent in the first four months, the most to start a year since 1990.

Gasoline:

High prices at the pump are putting a squeeze on the family budget as the traditional summer driving season begins. For every $10 the typical household earns before taxes, almost a full dollar now goes toward gas, a 40 percent bigger bite than normal.

Households spent an average of $369 on gas last month. In April 2009, they spent just $201. Families now spend more filling up than they spend on cars, clothes or recreation. Last year, they spent less on gasoline than each of those things.

Don’t let them pull the wool over your eyes.  Taxes will increase and benefits will be cut – just do not let them hide it from you.


 

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