





Economic consultant John Williams, an outspoken critic of the government's economic statistics, contends things are even worse.


That's more than triple the government's figure.


"You know this argument that the prices are going up about 2%, nobody believes it," Paul bluntly told U.S. Federal Reserve Chairman Ben Bernanke during a hearing last week. "People on fixed incomes – they're really hurting, the middle class is really hurting because their inflation rate is very much higher than the government tries to tell them and that's why they lose trust in government."

Changes to the Real Inflation Rate



"Government data are biased in politically correct directions and increasingly have diverged from common experience and reality since the mid-1980s," Williams says on his Web site,


By 1999, the CPI had incorporated the idea of "substitution."

Instead of simply measuring how quickly prices were rising, the CPI added consumers' reaction to those price changes to the formula.

Successful bargain hunting means inflation isn't hitting you as hard, the government said, ignoring the impact such adjustments have on a person's standard of living.

real inflation rate"The old system told you how much you had to increase your income in order to keep buying steak," Williams said. "The new system promised you hamburger, and then dog food, perhaps, after that."

Another adjustment, "hedonics," adds value to goods based on how much better they are than previous versions.

"Now we don't take the real prices of computer chips, for example, but their price deflated by capacity, so every Moore's Law doubling of chip capacity halves the price," explained Money Morning Global Investing Strategist Martin Hutchinson. "Of course, doubling chip capacity doesn't double the functionality, so the whole "hedonic' theory is rubbish."


Why Government Lies About the Real Inflation Rate

The government has strong motives for masking the real inflation rate.

Here are at least three:




"Every single day [the dollar] buys less the next day," Paul complained to Bernanke. "To me it's sort of like…a builder had a yardstick that changed its value every single day. I mean, just think of the kind of building we would have."

Related Articles and News:

Join the conversation. Click here to jump to comments…

  1. fallingman | March 8, 2012

    Good article. Thanks.

    So, with 10 year interest rates at around 2%, that makes real rates somewhere around minus 8%.

    But gold is in a bubble.

    Right. Got it.

    The truth is that an 8% rise a year in gold constitutes no change in its purchasing power relative to the clownbuck, so that percentage has to be backed out to calculate gold's real percentage gains or losses.

    Once you do that, any talk of a "bubble" becomes even more absurd than it already is.

  2. Gordan Finch | March 12, 2012

    Inflation is a tool of Governments to create domestic consumption lower to take more revenue from those starved by austerity. The tool used is FUEL. The tax take on Fuel is stoking Hyperinflation ? if you bought it- IT came on a truck— and I defy anyone to name any made, used or manufactured material that does not.

    Fuel duty – taxes are destroying everything and unless this is stopped and soon we will have a new war, designed –and I fear it may not be of words.

Leave a Reply


2 + = ten

Some HTML is OK
