A Better Inflation Gauge Shows Why Inflation's Much Worse

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Better Inflation Gauge Shows Why Inflation's Much Worse Plunging home values and swinging stock markets have hit Americans' finances hard. But a much bigger threat to your long-term financial health is inflation, which slowly but surely destroys the purchasing power of your hard-earned money.

Since things like Social Security benefits are pegged to inflation rates, it's important for the government to measure it accurately. Unfortunately, gauges like the Consumer Price Index don't always reflect economic reality for ordinary Americans.

That's why one organization wants to create a more accurate inflation yardstick.

The American Institute for Economic Research recently published its latest findings on its Everyday Price Index, which it argues is a better way to measure inflation than the CPI.

By looking at how people change the mix of products they buy over time in response to price movements and other factors, the AIER says, the EPI gives a much more realistic picture of what you actually pay for the things you buy.

According to its latest revised figures, the everyday price index rose 8% in 2011. That's much higher than the 3.1% increase in the CPI, as price hikes for gasoline and food played a much bigger role in the EPI's rise.

A Widening Gap Between CPI and Reality

When the AIER looked back at the last 25 years, however, it found an even more alarming trend: Until around 2002, the CPI and the Everyday Price Index tracked each other fairly closely. But over the past decade or so, the CPI has risen much more slowly than the EPI.

One key reason, the AIER says, has to do with technology products such as computers, smartphones and TVs. While prices for these products are factored into the CPI, AIER ignores them in calculating its inflation index because they aren't everyday purchases. Moreover, the CPI methodology incorporates adjustments for technological advances that further depress reported price increases.

Of course, no two people are alike in what they buy, so the inflation you'll see will be a bit different from that affecting someone else. But everyone has to look at the prices they pay in order make sure the money they save and invest will be enough to let them live comfortably in retirement. If you don't, inflation could take a bigger bite out of your savings than you think.

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149 Comments

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wlr523

another obama failure with "HIS" bailouts , VOLT plant is shutting down llaying offf 1000's

March 05 2012 at 3:53 PM Report abuse +3 rate up rate down Reply
cliffy934

Since food and energy is not included in the CPI, it being considered core inflation, is really a bunch of crap. The price of fuel as it goes up, increases the price of TV's, computers, phones, furniture, and anything you buy, including food. Inflation is inflation, no matter what they want to call it. If food and fuel goes up,, your cost of living goes up, and it does not take a rocket scientist to figure this out..

March 05 2012 at 12:46 PM Report abuse +2 rate up rate down Reply
1 reply to cliffy934's comment
bggdg

Food and energy ARE included in the CPI.

The so-called "core" CPI is an ADJUNCT piece of data. it is reported to provide ADDITIONAL information BEYOND that reported in the headline CPI, which DOES include food and energy.

March 05 2012 at 4:33 PM Report abuse rate up rate down Reply
WILLS

Happy to see someone else thinks the way I do as I have been saying exactly what is being reported for years.
The office CPI is broken into two categories and the part closer to reality is the "core" or food and energy with the oterh part being basically random purchase. When this is combined and averaged, you get a distorted figure. Real inflation should be on staple goods that are of regular and routine purchase.

March 05 2012 at 11:51 AM Report abuse +2 rate up rate down Reply
jb45855

I think a two tiered approach is important. One to gauge the general inflation rate for all citizens and a second to gauge the inflation rate of seniors who don't really purchase the average basket of things. Seniors spend the bulk of their money on food, medicine, and utiliies. Seniors don't have enough money to be buying cars or vacations etc. medical care for the average senior last year went up 22%, we all know food has esculated a terrific rate (tied to cost of transport), and utilities have esculated moderately. In the past three years seniors have received one 3% increase in Social Security and most of that was taken by the Government in the increased Medicare deduction from SSA.

March 05 2012 at 11:37 AM Report abuse rate up rate down Reply
1 reply to jb45855's comment
bggdg

The highest concentration of wealth by age demographic resides with senior citizens.

March 05 2012 at 4:30 PM Report abuse rate up rate down Reply
hapycaptou

Everthing has gone up (gas food school etc. etc.) due to inflation.And it's going to keep raising. Weclome to the New World Order.

March 05 2012 at 11:23 AM Report abuse +2 rate up rate down Reply
randersen956

Obamma said it was time for a change well we got it he said he was for the poor thats a lie he said top down bottom up the inflation rate is hurting the poor not the rich we need to put in a referendom it to the future elections that says if yuo make a promise to do something to win an election and do not keep the promise the people could Impeace him we also need to remove any bodt in congress and the senate that talks about our military as baby killers also strip them of any penison that they would get or getting such as John Mcain

March 05 2012 at 10:41 AM Report abuse +2 rate up rate down Reply
cherofnc

Ok, here's the deal. When the stock market is doing well, give credit to Obama's policies, doing badly, blame Greece or the world market and Bush. If oil prices are up, blame the greedy oil companies and Bush, if they are down, high five Obama. If there are storms, drought, heat, rain, earthquakes blame global warming, the Republicans including Bush. When employment drops announce how we are so lucky to have Obama forging the way on the golf course and campaign trail, when it ticks up, blame the numbers being cooked and/orBush. Now I see we need to blame inflation on the consumer. NOT the fact that we are printing money faster than the speed of light....Inflation has been rampant for a long time in the grocery store.

March 05 2012 at 10:16 AM Report abuse +3 rate up rate down Reply
1 reply to cherofnc's comment
theycallmeroy2

I hear you. Its hell finding out there's no accountability in politics. If there were, they'd all be in jail.

March 05 2012 at 10:33 AM Report abuse +4 rate up rate down Reply
pmarsh25

Author wrote: "Plunging home values and swinging stock markets have hit Americans' finances hard".

The stock market is UP over 60% since Obama became president -- how has this" hit Americans' finances hard"?

March 05 2012 at 10:09 AM Report abuse -2 rate up rate down Reply
2 replies to pmarsh25's comment
gdwn411

The stock market is up over 60%, but think about who the heck is investing? Its not the average everyday american! Or the growing "lower class". (which used to be middle class before greed became a publicly traded commodity)

March 05 2012 at 12:39 PM Report abuse rate up rate down Reply
jrb359

Stock market up 60%? Gas prices and food prices keep rising. Deficit is now $16 trillion, unemployment said to be 8.3% but we all know it's much higher than that. Will the president take responsibility for that? I don't think so.

March 05 2012 at 1:20 PM Report abuse rate up rate down Reply
randersen956

gas prices are the biggest great american rip off they need to be investaged as price gouging the barrel of oil does not match the price at the pumps we are being ripped off by the obamma administration

March 05 2012 at 9:29 AM Report abuse +2 rate up rate down Reply
Randy

When you don't take the highest rising price categories into the mix how can you give any credence to the inflation report? Gas prices and food are skyrocketing and they aren't even included in the report. Guess it is the governement's way of sugar coating things, just like the unemployment report which doesn't include those that have quit looking for jobs. Wake up people, we are all being manipulated like puppets.

March 05 2012 at 9:01 AM Report abuse +4 rate up rate down Reply
1 reply to Randy's comment
bggdg

If gas and food prices aren't given any credence in "the inflation report", I can only assume "the report" is one you've concocted yourself since gas and food are most certainly part of official government reports of inflation.

Why would you do something this stupid?

March 05 2012 at 9:38 AM Report abuse rate up rate down Reply