Have you ever wondered why the official inflation numbers never seem to jive with your own personal experience? For the most part, the media has dutifully reported the nonsensical CPI data as if it were scripture from the BLS. Originally, the CPI was determined by comparing the price of a fixed basket of goods and services spanning two different periods. However, over time, the U.S. Congress embraced the view that the CPI should reflect changes in the cost to maintain a constant standard of living. So is the BLS lying?
No, the BLS is not lying. They merely are reporting inflation statistics as directed – they are in fact technocrats. The CPI has “evolved” over the years. There have been many attempts to try to explain this, and we will try here using the Big Mac Index. The Big Mac is often used as the “basket of good and services,” because it includes in its production; food, labor, real estate, management, legal, sales, marketing, interest costs, transportation, utilities, and technology.
So it is really simple (see inset chart). The cost of a Big Mac has increased by about 160% since about 2000 ($2 to $5.50). If one was using the current BLS formula it would have only increased by about 80% ($2 to $3.65). About half as much between the two indexes. So how can this be?
There is some logic behind the BLS formula. A simple example is in housing costs. If you are a renter, you would pay the Big Mac inflation rate. But if you have owned your home since 2000, your housing costs are a lot lower (assuming a fixed mortgage cost) and hence the overall inflation is lower. The BLS inflation formula tries to blend all these issues together. Each personal inflation rate is different. The poorer you are, your inflation rate tends to be higher via the magic of currency debasement – a topic for another article. The bottom line is that currency debasement is the key element that has caused wealth inequality.
Back to the question, Is hyperinflation coming? The short answer is yes. When is harder to tell – it will be a political decision. The diversion of the Big Mac and CPI inflation over time grows, even goes exponential. Wealth inequality will continue to widen until socialism via envy politics becomes a reality – inevitable human greed. At this time the engine of socialism ignites.
Initially, socialism will de-fiscalize wealth existant (tax the productive) – life will be good for a short time. Once the wealth is gone and the productive are driven away, governments will turn to extreme currency debasement. It is at this time hyperinflation will start. What it does to society is another article. In Europe, the process is further along, but the U.S. is about 10 years away from today, though political events can extend or shorten this timeline. Prepare accordingly.
A video presentation of this subject: