This week, the Labor Department reported that the Consumer Price Index, or CPI, its official measure of the price of a basket of everyday goods and services, including gasoline and groceries, was unchanged in October from the previous month and up 3.2% from October 2022. Excluding the often volatile prices for food and fuel, the so-called “core CPI” was reported by the government to have increased 0.2% for the month and 4% for the year.
These rates of inflation are much slower than the 9% CPI reported in 2022, and somewhat slower than had been predicted by economists. The Biden administration has seized on this and is characterizing the numbers as a victory in the long war against inflation, and proof that Bidenomics is working and delivering dramatic relief to American households.
We should reject such claims. They are nothing more than cynical political spin designed to mislead the American public and conceal the disastrous consequences of the irresponsible policies of the Biden administration. The economic situation confronting American households is much worse than officially reported, for two significant reasons. First, CPI understates the real rate of inflation. Second, inflation’s impact on prices is cumulative. Let’s consider each of these in turn.
The government calculates CPI using a methodology intentionally designed to understate actual inflation. For example, the shelter component of CPI is not based on actual home prices, but on a proxy figure derived from opinion surveys. This approach has consistently understated the cost of shelter over long periods of time.
CPI also includes downward “substitution” adjustments based on assumptions that consumers will respond to rising prices for things like steak by purchasing cheaper alternatives such as chicken. These substitution adjustments conceal the real hardship inflicted on American families as they are forced to lower their standard of living in response to rising prices. By the twisted logic of government bureaucrats, perhaps we could reduce our grocery bills further by switching from chicken to Spam, or by skipping meals altogether.
CPI price components are also adjusted downward when the government concludes that there are quality improvements in more costly products and services that offset price increases. The problem here is that the government counts as quality improvements such things as its mandated “energy efficiency” standards. These mandates have certainly raised the purchase price of our household appliances but they have actually degraded the operating quality of many appliances. And the government makes fewer upward adjustments in CPI to reflect declines in quality or the “shrinkflation” we encounter every day.
Without its downward adjustments CPI would, by some professional estimates, be close to twice the official reported figures. That would mean that the prices this October for a basket of everyday goods and services were actually between 6.5% and 8% higher than they were in October of 2022. What do you think? Which figures more accurately reflect your everyday experience in the grocery store and at the gas pump?
Even if the actual rate of inflation is lower than it was last year, we must remember that inflation is cumulative. CPI measures the increase in selected consumer prices over time. Prices that increase at a slower rate are still increasing. Things will be more expensive in the future, not less.
And even if the actual rate of inflation fell to zero and stayed there, Americans will still have to deal with prices that have already risen close to 20% since Joe Biden took office. Americans are right to be angry about the state of the economy. Bidenomics is not a success, it is an unmitigated disaster.
In our democratic republic, public officials are formally accountable to the electorate for the consequences of their official actions, the benefits realized and the costs incurred. Irresponsible fiscal, monetary, and regulatory policies created the inflation that produced the elevated prices that now burden us. Public officials need to be held accountable. For that to happen, we need to strip away the falsified statics they concoct to conceal their failures.
J. Kennerly Davis has over forty years of experience in finance, corporate management, public service, and the private practice of law.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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