The Lie of the CPI: Real Inflation Is Everywhere

Mainstream pundits regularly scoff at Peter Schiff when he insists that real inflation is higher than the official Consumer Price Index (CPI), but an AP report this week vindicates his position.

During a recent interview on MSNBC, Schiff insisted that money printing by the Federal Reserve has already created a lot of inflation. He also believes the Fed must continue its inflationary policies. But the host scoffed, disputing the notion that the introduction of all these new dollars is necessarily inflationary.

I feel this is the refrain we’ve been hearing from gold advocates for a long time, especially since 2008 – that inflation has to go up. But when we look at actual consumer prices, they’ve been very muted…”

Peter reiterated that prices are already rising.

I don’t think inflation is around the corner. I think if you talk to most… consumers who go to the grocery store or pay their utility bills or cable bills or their insurance or their rents – prices are rising. They’re rising rather rapidly. It’s just that the CPI doesn’t capture those increases the way it used to, because the government has changed the methodology for calculating it. But the cost of living is going up, the standard of living is going down, people recognize that.”

The Associated Press now recognizes it as well, reporting this week that Americans are beginning to feel the pinch of price hikes, just as Peter described.

Apartment rents are up. So are prices for restaurant meals, haircuts, gym memberships and a cup of coffee. For American consumers who have become used to flat or even falling prices for several years, an unfamiliar sight has emerged in many corners of the economy: Inflation is ticking up.”

Government apologists continually point to the CPI as proof of low inflation, because it has remained flat over the past 12 months. But the CPI is not a tool to accurately measure inflation. It’s an instrument of propaganda the government uses to hide accelerating inflation from the public and financial markets. But Americans out living in the real world intuitively know that their standard of living is shrinking, as the AP vividly illustrates.

…prices are rising. If you exclude food and energy, which tend to fluctuate sharply, ‘core’ inflation has risen 2.3 percent at an annual rate in the past three months.”

The most recent Bloomberg Consumer Comfort Index measuring consumer confidence reflects the unease felt by average Americans. It dropped for the fifth consecutive week.

The personal finances gauge declined to 52.6 from 54.9 in the previous week. A 5.2-point drop in the past two weeks has occurred just 13 times in data back to 1985. A measure of the buying climate, which shows whether it’s a good time to spend, fell to 35.5 from 36.2 in the prior period.”

The AP report highlights rising prices on numerous fronts. Rents lead the way, climbing 3.5 percent this June compared to last. It marked the fifth straight month of similar increases.

Analysts told the AP these aren’t just temporary fluctuations either.

Economists expect the price increases to continue, in part because they’re occurring mostly in services, whose prices tend to be comparatively stable. Economists call these ‘sticky’ prices.”

Sticky prices don’t change that often. Utilities typically must ask regulators to approve price increases, for example, and most restaurants don’t want to frequently reprint menus. But once they do start to rise, they are slow to change course.”

According to the Federal Reserve Bank of Atlanta, sticky prices have jumped 3% over the past three months.

Even as AP announced rising prices, the Wall Street Journal reported low inflation rates may stall anticipated interest rate hikes.

A measure of US inflation expectation in the bond market tumbled Thursday to the lowest level in nearly five months as US crude oil prices fell to near the lowest level of 2015, potentially complicating the Federal Reserve’s plan to raise short-term interest rates for the first time since 2006.”

Of course, Peter Schiff has maintained that the Federal Reserve will not raise interest rates in the near-term. These cooked inflation figures allow the Fed to perpetuate the illusion that their monetary policy is not inflationary, while justifying a continuation of the artificially low interest rate environment that will likely accelerate rising prices.

The latest news reinforces Schiff’s view that gold is an essential asset for protecting your wealth from inflation and a failing US dollar.

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