I read recently in an email from Stansberry and Associates about the  Boskin Commission, commissioned by the Senate years ago to assess whether inflation was “overstated”.  (I believe there have been several such commissions throughout time – the Caesars of Rome, I’m told, used to devalue their own money without telling the people…)  The commission apparently discovered that inflation was indeed “overstated” and recommended “price reductions for quality improvements” in items like cars, computers, and televisions. 

According to that email, these reductions are called hedonic adjustments.  These “adjustments” now account for 46% of CPI components.*

Based on an article in Barrons by Sandra Ward in May of this year, if CPI was measured by the same standards used in the 1970s, today’s inflation rate would jump from 3.55% to 8%.

Obviously, the government does this to serve its own interests – every president and Congress, facing re-election, wants to be seen as “good for the economy.”  Carter wasn’t and it cost him the presidency.  Bush the first was the same. 

But there is a more sinister side to it as well. The “official government” inflation rate is used to determine payment increases in programs such as Social Security and Medicare.  Not that I am for these program in any way, but it seems a huge swindle by the government to try and fix the numbers in their favor so they can inflate the currency (by holding interest rates low while printing tons of money) without it costing them (and us, but that’s an argument for another day) anything!  Does this strike anyone else as outrageous?


*“The Acamar Journal.” Canadian Resource Equities. May 2005: Volume 2. Issue 4. Online at http://www.callcenterme.com/email-hosting/acamar/22/newsletter.html