Ostensibly, the CPI stands for Consumer Price Index. I have a few alternate suggestions:
- Contrived Price Index
- Controversial Price Index
- Captive Price Index
There are several thing that I don’t like about the CPI, specifically the CPI-U (The Consumer Price Index for All Urban Consumers). Most troublesome, is that it is used interchangeably with the term “inflation” or “US inflation”. While CPI-U includes food, energy, and medical expenses, for example, it does so in ways that are far removed from the way many consumers purchase.
For me, the CPI-U appears to understate the inflation I’ve seen in the last 10 years. The price of my satellite/cable TV has doubled. The share of health-care insurance that comes out of my paycheck has gone from $20/month to $200/month. I still remember getting a Big Mac value meal for $2.99, but now it’s about $5.00. It’s hard to believe that consumer inflation has averaged just 2.3% annually over that time period.
I’ve read a number of articles saying CPI-U understates inflation by about 1.0-1.5% annually. If so, this is a big deal. Real interest rates are not only negative they are substantially negative. And real GDP growth is dramatically overstated.