During his press conference last week, Federal Reserve Chairman Ben Bernanke said that one of the Fed’s big concerns was that inflation was too low. He revealed that the Fed bases this contention on an index of “core inflation,” which excludes food and energy costs.
“Core inflation” is mainly of interest to Americans who don’t eat and don’t drive. Others will be more concerned with broader inflation measures, such as the CPI-U. However, over the years, the government has modified the CPI-U to reduce the reported rate of inflation. Economist John Williams has noted that if the CPI-U were calculated the same way that it was calculated in 1980, the year-over-year inflation rate reported for March 2011 would have been 10.20% rather than the “official” 2.68% number.
How can a citizen know what is really happening on the inflation front, given that the government seems to be trying to hide the truth? Watch for these ten secret inflation warning signs:
1. You are filling your car up with gas and you notice that the “price per gallon” digits are going up faster than the “gallons” numbers.
2. McDonalds announces that they are freezing the price of their most popular burger, but that they are renaming it the “Quarter Ouncer.”
3. You go to a restaurant in San Diego, and you are relieved to find that the prices on the menu look like bargains. Then you realize that they are denominated in pesos.