From a December 18 blog post by Paul Krugman
, who I happen to agree with on this issue:
"One response of inflation-fearers to the absence of the inflationary
outburst they’ve been waiting for is to reject the numbers, and claim
that the BLS is hiding a much higher rate of inflation than the official
numbers say. You see that a fair bit in comments, and some credulous
mainstream figures (i.e. Niall Ferguson) have also bought into this
story. How do we know that it’s wrong?
We now have price measures calculated independently by people not in the government — in particular, the MIT Billion Prices Project
The BPP collects prices from the internet; this means that it’s not a
perfect match for the consumer price index, which includes things such
as services that are generally not sold online. But if inflation were
much higher (or much lower) than reported, you’d expect to see a big
divergence between the independent index and the official stats. But you don’t (see chart above).
Forty months into the project, the BPP shows a price rise about a
third of a percentage point higher than the CPI. That’s around 0.1% higher inflation annually -- i.e., essentially nothing. Sorry, folks, but there’s no grand conspiracy to hide inflation."
A well-known government inflation skeptic is John Williams (Shadow Government Statistics
), who claims that the current 3.4% "official" annual inflation rate through November (NSA) as calculated by staff economists at the BLS is being manipulated to show a downward bias, when his "unbiased and un-manipulated" inflation is closer to double that rate, or about 7%
(calculated using the methodologies in place in 1980).
But Krugman makes a good point - why doesn't the alleged downward government bias show up in a huge difference between BLS and BPP inflation rates, with BBP inflation being much higher? The current BLS-reported annual inflation rate of 3.4% is actually slightly higher than the 3.25% BPP annual inflation rate through November, so if anything, the government measure of inflation might be showing a slight upward bias.
If there is a government conspiracy to hide inflation, why is the government's CPI measure of prices so close to the price index compiled from the internet by MIT?