Countering Putin's Inflation

Damned Ruskies

TL;DR: The CPI is understated nonsense, and a higher cost of living is very bad for most people.

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Bloomberg Discovers Shrinkflation: Why Is My Ice Cream Shrinking? Inflation by Stealth.

How infuriating is this?

Groceries are becoming more expensive. What people may not have noticed is they’re getting smaller too.

Of course people have noticed, Bloomberg! Do you think people (besides I guess some billionaires in New York) are unaware of shrinkflation? Do you think you are revealing something we didn’t know? Go back to Davos FFS.

Bloomberg is always the tip of the kleptocracy’s spear. Good timing on this one too, Peter Coy: April 2019: Did Capitalism Kill Inflation?

As I wrote at the time, “This is complete nonsense. There's plenty of "inflation," which normal people understand to mean "a rise in the cost of living." The propagandists use CPI, which is a MODEL of the cost of living, full of goofy hedonic & other adjustments & weightings.”

Peter Coy wasn’t done: Inflation Is Lower Than Most People Think (also April 2019)

Let’s see what Peter Coy wrote next:

This is a widely shared view, not just in what the reader calls flyover country. It is also … wrong. The official measure of inflation, while imperfect, is far more likely to be accurate than the subjective impressions of ordinary consumers. The Bureau of Labor Statistics puts enormous effort into gathering price data for its monthly Consumer Price Index. If you doubt that, peruse its painstakingly detailed, 107-page Handbook of Methods (PDF) or the more reader-friendly FAQ.  

This is the kind of bullshit we are regularly fed by the MSM, the Fed…everyone.

Who you gonna believe? Peter Coy, or your lyin’ eyes?

This isn’t the first time I’ve called out this nonsense.

e.g., Bloomberg April 2017: Consumers Are Always Wrong About Inflation. But They’re Worth Listening To

Between 2004 and and mid-2015, the mean perceived inflation rate in the euro area was 9.5 percent, which was “considerably above” the actual average inflation rate of 1.8 percent, the research shows. For the European Union, perceived inflation was 9.8 percent versus an actual figure of 2 percent.

Your experience means nothing compared to their models.

They sure have inflation in the euro area now, even using the grossly understated official numbers: Just today, French CPI 5.2%, French PPI 27.8%. Official German CPI is 7.9%. Rates are neglible.

The government gaslighting us on the real world cost of living is nothing new. e.g., This is from "Nation's Business", May 1980: “Citizens Find Inflation Worse Than Reported”

MANY EXPERTS believe that the consumer price index overstates inflation, which rose 13.3 percent in1979, but many average consumers disagree. This finding is from the latest quarterly consumer opinion survey conducted for the U. S. Chamber Survey Center by the Gallup Organization. On the basis of their own experience in their own communities, 40 percent of consumers believe the government's estimate of consumer price increases understates inflation. Thirty-eight percent feel the government estimate of inflation is about right, and nine percent say it overstates inflation. Fourteen percent were undecided.

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Back in August 2020, when official CPI was 1.3%, not 8.2%, I wrote:

If the Fed wants their model of inflation to be higher, simply stop using the BLS' ridiculous hedonic adjustments, goofy weightings, odd substitutions and outright replacement methodologies they've thrown in since the 1990's. You'll get 6% or 8% CPI real quick.

So with official 8% inflation today we’re easily in the double-digits. Ask around among people who aren’t economists.

So how do “hedonic-quality adjustments” work?

If you read this example from the BLS, a $1,250 Television (admittedly much nicer) is -7.1% CHEAPER than the old $250 TV, "after the quality adjustment is applied." So they are saying that something that costs 5x what an older model costs is actually -7.1% CHEAPER, and that's what goes in the CPI.

When I checked in 2019, “the BLS CPI weighting for "Televisions" (which they hedonically-adjust the hell out of, downwards) is 3x (three-times) higher than the BLS weighting for "Technical and business school tuition and fees".

And next time you go shopping for men’s shirts, take this with you:

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Another great visual of what nonsense the CPI is. New car prices supposedly basically unchanged from 1995 until early 2021, now spiking. CPI is not just some math geeks' model, it's become an exceedingly misleading and dangerous tool.

And this I tweeted in May 2019: “Like many of you, health insurance is now my #1 or #2 expense. My premiums went up over 20% this year & last year, and have averaged +15% this century. You think those numbers show up in CPI? LOL - think again. BLS uses a weird "Retained Earnings Method."

Even though insurance premiums are an important part of consumers’ medical spending, the CPI does not directly price health insurance policies. In a direct approach, we would track the movement of insurance premiums, holding constant the quality of insurance, and use these price relatives to build the Health Insurance index. However, the CPI has been unable to consistently control for changes in quality such as policy benefits and risk factors. Price change between health plans of varying quality cannot be compared, and any quality adjustment methods to facilitate price comparison would be difficult and subjective. As a result, we developed an indirect approach called the retained earnings method.

And then there’s “Owner’s Equivalent Rent”, which Jeff Gundlach talked about earlier this year. Here’s the clip.

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To add insult to injury, our very, very wealthy Fed apparatchiks had been calling for a higher cost of living (i.e., lower real wages and incomes) forever…

As I wrote in 2020:

Anytime there's a discussion of inflation, the only ones calling for more are inbred economists, people who own lots of assets, people who make a living off of either of these groups, & kids still living at home. The other 90% will chew your ear off about the high cost of living.

And what’s the incentive here?

Anyway, I was finishing up some podcasts in my very long queue, and almost had a stroke at this, from January 2021.

They [the Fed] want inflation of 2%, 3% plus, 3% or 4%, is what they’re looking for. They want to reduce inequality.

This is the problem with so many at the Fed, the MSM, Congress, Fintwit types etc. They think inflation is a good thing. Maybe for highly levered asset holders it’s ok, but for everyone else it’s a disaster.

“Dangerously low” inflation? Seriously?? We are colonized by wankers.

Sudden Debt, again. This comment seems to have nailed the real issue:

you know... I am thinking... the U.S.... and Europe... and Japan... and China (corporate) debts are so bad that there is no way they are going to be paid without inflation.... the central banks can't say it... but I think they are aiming for 10% inflation a year... =)

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Friend of the show Bill Brewster relayed a good quote on the Twitter that he got from Shrubbery Capital: “…the Shrub told me the hardest thing to do is not buy in a bear market.” As someone who is always early (sometimes crudely known as “wrong”), I can relate.

If I tell you that if you play Russian Roulette over and over, you will die, and for a while you don't, am I wrong?

As the great Jim Grant once said, “Successful investing is about having people agree with you...later."

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