Posts Tagged ‘ShadowStats’

What is your personal price inflation rate?

Thursday, October 23rd, 2008

Yesterday, we read this news article, Inflation spike erodes savings,

With [Australia’s] inflation running at 5 per cent, savers will struggle to preserve the value of their finances due to sliding bank deposit rates.

Inflation is also running high in the rest of the Western world. Worse still, many of the official measurements of inflation run counter to personal experiences. In fact, official statistics are so often doctored up that some entrepreneur came up with a business (Shadow Stats) that “exposes and analyzes the flaws in current U.S. government economic data and reporting, as well as in certain private-sector numbers, and provides an assessment of underlying economic conditions, net of financial-market hype.” For example, if the pre-Clinton era CPI is used to measure today’s US inflation figures, it will come up with figures that are twice the official ones!

Anyway, the entire idea of price indices is logically invalid. It is a number that is the work of many arbitrary decisions. As we quoted Ludwig von Mises in How much can we trust the price indices (e.g. CPI)?,

If she [a judicious housewife] ?measures? the changes for her personal appreciation by taking the prices of only two or three commodities as a yardstick, she is no less ?scientific? and no more arbitrary than the sophisticated mathematicians in choosing their methods for the manipulation of the data of the market.

Today, we would like to hear from our readers. What is your personal experience with prices over the year? Do you think the official 5% figure accurately reflects the rising cost of living in your personal life?