The US Inflation Figures are Fabricated

Despite the cheers, inflation continues to erode the savings of Americans. Much more than what official figures suggest.

Prices are still rising

The annual inflation rate in the United States eased to 3.20% in October. We were at 3.70% the previous month and 7.75% a year ago. It even soared to 9.1% in June 2022.

Inflation is now equal to the long-term average of 3.3%. In other words, prices continue to climb. One must go back before 1960 to find a year without inflation…

Furthermore, everyone knows that the Consumer Price Index (CPI) very poorly reflects reality. A more realistic index is the Chapwood Index. This index accounts for a fixed list of 500 popular items whose prices are compiled without any modification.

It turns out that inflation is always higher than 9% in almost each of the 50 largest American cities. 11% in New York, Los Angeles, and Chicago. 13% in San Francisco.

The reason being that the official figures are notably distorted due to the “quality effect.” This accounting twist artificially lowers the price of products whose performance increases. For example, a PC costs 50 euros in the imaginary world of national statistical institutes.

Another scam is the weighting of different products in the typical household basket. For example, in the United States, food represents only 13% of the basket. Energy (electricity, gas, etc.) represents only 7%. Even better, according to the American Bureau of Labor Statistics (BLS), Americans spend only 0.50% of their income on health insurance…

Another formidable artifice is the “substitution effect.” The scheme is to change the weighting of different products in the basket. For example, if the price of beef increases and people choose to buy chicken instead, the weighting of chicken will increase while that of beef will decrease.

The Inevitable Inflation

The distortion of reality began in 1983 in America, at a time of rampant inflation (second oil shock). Since then, the BLS has been tampering with its calculations to curb the increase in retirement pensions which are indexed to inflation.

So much for the boomers who are said to have benefited. However, wage increases are generally also indexed to the CPI…

That said, there are no miracles. False inflation figures obscure reality but are not the cause of impoverishment. The decline in the standard of living is linked to falling productivity.

What explains the drop in productivity? Certainly the scarcity of energy, as well as the lack of technological breakthroughs that allow producing more with less.

Regardless, this results in public deficits that will be mopped up by more debt (more printing of money), which will have a ratchet effect on inflation.

As the director of research at Natixis said this week:

“In the pessimistic scenario of low productivity growth in the eurozone, growth will be insufficient […] to visibly reduce the public deficit […]. To avoid the return of a crisis of public debt sustainability, the ECB could then be forced to reopen Quantitative Easing.”

In short, inflation is much higher than announced. It should even worsen given the geopolitical tensions. Sources close to the Iraqi government have stated to Russia Today that the country of the two rivers could reduce its oil production by one million barrels per day.

And since inflation always begins with an increase in energy prices, there is cause for concern. We are living in a pivotal period of high inflation. It’s time to protect your savings by investing in bitcoin.