Real US Inflation at 15%?

Wow, revelation. When you take out oil and housing prices from the Consumer Price Index it looks pretty good. Magic! Put them back in, not so much so.


"In 1983, the Bureau of Labor Statistics [BLS] was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15%, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2% real return after inflation, that would mean that bond and money market yields could climb as high as 17%."Yikes! What to do, what to do, what to do whattodowhattodo? "The BLS's solution was as simple as it was shocking: exclude the cost of housing as a component in the CPI, and substitute a so-called 'Owner Equivalent Rent' component based on what a homeowner might 'rent' his house for." Hahaha! The government resorts to lying! "Wow! Why didn't we think of this before?" they are heard to ask among themselves. Fortunately for the government, it worked. "The result of this statistical sleight of hand was immediate and gratifying," Mr Hardaway writes, "for the reported inflation index quickly dropped to 2%"

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