AFter calculating the new savings bond rate, I noticed that from March 2012 to March 2013 the inflation rate per the Consumer Price Index was only 1.5% over the past year. Whenever you see the government announce a relatively low inflation numbers, there will always be people shouting “the government manipulates the inflation data!”. I looked into this previously with my post Does The Government Underestimate Inflation Through The CPI? Short answer: Yes they do, but maybe not in the way you think.
Usually, this is followed by the anecdotal argument “Does gas ever go down? Does your rent ever go down?”. It certainly feels like prices are rising quicker than that. My water bill just got hiked another 10%. The thing is, we always notice the increases, but tend not to notice when prices drop. When something is cheaper, we just chalk it up to being great bargain hunters. Truth is, gas prices did go down for a while.
Another way to keep an eye on inflation is with MIT’s Billion Prices Project (previous post) which tracks prices in real-time by grabbing them from websites. By checking on 50,000+ different prices daily covering everything from prescription drugs to clothing to real estate, this alternative inflation measurement has the potential to keep governments “honest” with their numbers.
Index Values: CPI vs. BPP
Annual Inflation (% change, last 365 days)
Charts taken on 4/17/2013. Over the past five years, the two indexes have actually tracked relatively closely. Just recently, the two are diverging a bit; BPP is showing a little over 2% inflation as opposed to 1.5% from CPI. It appears that the daily BPP updates run a little ahead of the monthly CPI updates, so perhaps an uptick in CPI is coming.