Cognitive dissonance in financial media about inflation


Cognitive dissonance in financial media about inflation.
It's not exactly a secret that real-world inflation is a lot higher than the official rates--the Consumer Price Index (CPI). As many observers have pointed out, there are two primary flaws in the official measures of inflation:

Big-ticket expenses such as rent, healthcare, and higher education - expenses that run into the thousands or tens of thousands of dollars annually - are severely underweighted or mis-reported. While rents are soared, the CPI uses an arcane (and misleading) measure of housing costs: owners' equivalent rent. Why not just measure actual rents paid and actual mortgages/property taxes/home insurance premiums paid?

Healthcare is 18% of GDP but only 8.5% of CPI. To those exposed to actual costs of healthcare, 8.5% of the CPI is a joke.

The same can be said of higher education: households paying tuition and other college costs are exposed to horrendously high rates of inflation.

More honest and accurate estimates of real-world inflation that include the big-ticket categories of housing, healthcare, and higher education reckon annual inflation is around 7% or even as high as 10% in high-cost metro areas, not 2%. This sets up a very peculiar cognitive dissonance in the financial media.

On the one hand, government agencies are bending over backward to under-report inflation. On the other, the Federal Reserve is whining that inflation is too low, and its efforts to push it higher have failed.

As many observers have noted, wages for the bottom 90% have not kept pace with higher costs. For the bottom 90%, rising rents, higher property taxes, higher health insurance premiums, higher healthcare co-pays and deductibles, soaring college tuition and so on, have squeezed household budgets while household income has stagnated.

No wonder the government wants to mask the real rate of inflation. If it was widely understood that inflation is reducing our purchasing power at an annual rate of 7% while wages are rising at 1% or 2% if at all, people might realize the Fed and other authorities have stripmined the many to enrich the few.


Global Economics