Its a bit long but really worth a read to see what our erstwhile Government and Reserve Bank are really doing to us...
Inflation and its reporting (the hidden Lies)
by Mark Thompson
It can be said the best place to hide anything is in plain sight.
We see prices every day. But do we really "SEE" them?
Let's start with the basic reporting of the rising costs of goods and services in our society. The ABS publishes the CPI "Consumer Prices Index".
To work out the CPI you would assume the ABS would track a basket of goods and services over the course of a year and subtract the cost of one from the other and 'hey presto!' you have the increase in the cost. Well sort of, except that in public service double-speak you have other things to consider in the calculation before the end result.
- Substitution
- Weighting
- Hedonics
- Volatile Items
- Season adjustment, and
- Reporting
Weighting is where items in a basket of goods and services have a percentage impact in your spending. Say for instance a product like beef rises in price very quickly so you switch your meat preference to chicken. The weighting of chicken goes up and beef goes down. What happened to that expensive steak you enjoyed once a week? Chicken Kiev anyone!
Hedonics, the Latin "for the pleasure of" puts the rubber in rubbery. Let's assume you bought a computer a number of years ago and it cost say $2500 and now you upgrade to a new one for lets say $2500.
From the ABS's perspective you have a more powerful tool to play solitaire and read email, so with all the bells and whistles there must be a productive increase so they might assume the real cost is say $1500. Viola! CPI goes down. Er, but it still cost $2500.
Volatile items is one of my favourites. To calculate the CPI, they say, 'how can meaningful results be achieved if some goods and services swing wildly?' - mostly up, e.g. petrol, fruits, utilities, property rates and charges, child care, health, other motoring charges, urban transport fares, postal, and education. The ABS in its wisdom EXCLUDES them from the calculation.
Seasonal adjustments, usually down, to quote 6401.0 - Consumer Price Index, Australia, Mar 2009 "where CPI components are identified as having a seasonal pattern, quarterly price changes are estimated on a seasonally adjusted basis" are in effect a GUESS !
Now for my real favourite Reporting. This is where the boffins that can't fix the problem just redraw it. The chart below is distorted to give the impression of a gradual increase in the CPI.
Looks kind of gentle huh? The same graph scaled correctly and data extended to include CPI from 1901-2008...
Oops! Not quite so gentle.
In the above graph I have included some additional comments for you to draw your own conclusions.
Just some background info in 2004-5 the ABS stopped tracking the CPI from the turn of the century, besides having an adjusted CPI of say 166 using a base of 100 from 1989-90 looks a lot better than a base of 100 from 1945 with a CPI of say 3000.
As a side line to the above discussion some of the effects of price inflation is the redefining of description. Example, it was only a few years ago pizza's came in 3 sizes small, medium, and large. Have you noticed how large is the only size and happens to correspond to the original medium. When you buy a burger from one of the many franchises notice how the size is smaller but we still have low low prices.
I will leave you with a couple of other thoughts how labeling has changed. You used to buy baked beans in a 375ml can now you buy baked beans in a smaller 400g can. Beer was either long neck or stubby now the bottle size is 275ml.
The erosion of purchasing power has been gradual and pervasive and manufacturers are using every trick in the book to convince you that you are getting good value for money. Just note when you pull back the curtain the emperor has no clothes and soon so shall we.
Yours in Freedom, Liberty and Sound Money
Mark Thompson
(Thoughts from an old builder)
