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Posted by: 14. January 2014

The Real inflation Rate

 

When we look at things we actually buy, we get a different look at inflation. Measured inflation (the blue line) is quite low despite rampant money creation. But is inflation being realistically measured? 

Perhaps the price of a McDonald’s Big Mac (the red line) would be a good price indicator. A Big Mac incorporates wages, several commodities, rent, utilities and transportation costs. Costs have risen much faster than the official inflation rate.

Likewise, the PNC Christmas Price Index (the green line), which costs out the items in the “12 Days of Christmas,” encompasses several different types of labor and commodity costs. Again, those costs have increased considerably faster than the CPI (and interestingly, almost in line with the Big Mac index).

If inflation is under-measured, then the “true” costs of living are being low-balled, and our well-being is overstated.

Originally posted on pmpaspeakingofprecision.com

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