We have commented here recently about the folly being perpetrated in some of the governmental reporting of statistics. The distortions have grown so obvious that the Consumer Price Index (CPI) for April reported a drop in the cost of energy based on seasonal adjustments. Add that to the continuing outrage of relying on the core number, which excludes food and energy.
While all of the major reports’ numbers can be challenged, the CPI is perhaps the worst offender as that number is used to adjust Gross Domestic Product and is the basis for cost of living adjustments in social security payments and often in private sector salary increases.
It has become so serious that Futures is including an interview with economist John Williams in our July issue. Williams’ Website shadowstats.com calculates several of the major economic reports using their original methodology, free from changes that over the years has eroded their value and presented Pollyannaish numbers.
Lest anyone out there wants to dismiss this talk as the ramblings of a few radicals, check out a letter PIMCO boss Bill Gross posted on his Website.
Gross lays out the distortion in our inflation reporting as well as some of the long-term ramifications. He says, “The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens.”
He adds that a readjustment of investor mentality in the valuation of bonds, stocks, and real estate could mean a downward adjustment of 5% in bonds and 10% or more in U.S. stocks and commercial real estate.
He concludes, “Being fooled some of the time is no sin, but being fooled all of the time is intolerable. Join me in lobbying for change in U.S. leadership, the attitude of its citizenry, and (to the point of this Outlook) the market’s assumption of low relative U.S. inflation in comparison to our global competitors.”