Fretting Inflation? Buy These Funds

A look through some of the government's price data bears her out. The five and a half years since January 2002 look very different from the five years before it.

The inflation rate for road haulage has trebled, from 5.5% in the period 1997-2002 to 18% since. For hospital costs it has doubled. Commodity prices, which actually fell over the earlier period, are up 28% since. Even lawyers' fees have accelerated.

Sure, the official inflation figure seems pretty benign, especially to those with long memories. Back in the early '80s, the official rate topped 14%. Today it's just 2.6%. We're safe, right?

Alas, we're not comparing apples and apples. Since the early '80s, Uncle Sam has quietly changed the way inflation is calculated -- several times.

No, this isn't conspiracy theory stuff. And as Minehan pointed out when I raised the issue with her, many of the changes have a lot of statistical justification. Real inflation in the past was probably overstated.

Nonetheless, the changes alter the final numbers dramatically.

Independent economist John Williams, who has been a consultant to blue-chip corporations for 30 years, believes he has worked it out. He estimates that using old-style calculations, the official inflation rate today would be a lot higher than 2.6%.

How much higher?

Try 10%.

All of which suggests that investors need to keep one eye on further bad news on the inflation front.