If you turn to any major news network these days, you will hear predominantly optimistic economic news from the government. Thousands of jobs “saved” by the stimulus bill, a recovering housing market, and a stabilizing financial industry can induce a strong confidence in our country’s economic future. Why then, do so many Americans still feel the sting of the recession? It would seem that the government’s figures, for many families, are too good to be true.
Nowhere is this truer than in government reporting of the current inflation rate. The government optimistically has pegged the current rate of inflation at a mere 2.1% for the year. This statistic sounds quite good, but does not reflect economic reality. The government calculates inflation through the use of the “core inflation” method. The core inflation rate refers to a selective measurement that excludes “volatile goods” whose prices may be changing at more explosive rates. This selective measurement allows the government to report inflation at consistent and optimistic rates in direct opposition to the truth.
For example, in February of 2011 the government reported inflation at 2.6%, even though commodities were surging, and oil rose almost 9%. Commodities were not included in the official inflation rate because they were deemed “volatile.” Currently, goods being affected by the catastrophe unfolding in Japan will be excluded when the inflation rate for March is calculated.
This is misleading, and does not reflect the true nature of inflation, which is simply defined as the change in the general level of prices of goods. In order to accurately calculate inflation, all goods must be considered. By adding electricity, gasoline, and only a few other basic excluded price indices to the formula, the inflation rate for February is recalculated at 3.5%, instead of 2.6. All the available data shows that the real rate of inflation has hovered between 3 and 4% for the past several months; a significant difference from the numbers reported by our government.
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