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What is the Real Rate of Inflation?

The U.S. Government is about to end another fiscal year on September 30.  They will pat themselves on the back for recording the lowest deficit of the Obama years.  And they will be (once again) lying.

Not only will they lie outright, as the true numbers are fudged by loaning money between departments, delaying payments and other “sleight-of-dollar” tricks, but they also lie about important items such as the rate of inflation.   The inflation rate is used to determine increases in Social Security benefits, pension increases, tax rates, and a host of other items, all of which impact the Federal Budget by keeping spending from increasing even faster.

But what gets lost in the deception is the impact it has on real people by understating the true cost of living changes.  Social Security recipients, union members, and many other segments of society depend on the statistics produced by government to get pay raises commensurate with the cost of living.

I spend a lot of time talking about the Chapwood Index, which measures the cost of buying real things that real people need and buy every day.  Every year, the government numbers are released showing almost non-existent inflation.  But the Chapwood Index is released every six months, and it tells a vastly different story.

During the 12 months ended June 30, 2015, the government reported price increases of less than 1%.  But Chapwood reported a significantly different number, 9.9%.  So if you got a 1% raise last year (Social Security was raised by 1.7% for 2015, (and in 2016 it is likely to not increase at all), you are falling behind quickly.  And I might suggest that many people feel that way, although they can’t explain why without help from something like theChapwood Index.

In other words, who are you going to believe, the U.S. Government, or your own lying eyes?

I have some examples:

  • Since 2006, the CPI has increased by 18.1%
  • Median household income has risen only 14.56%
  • 1 in 4 Americans now spend over 50% of their income on rent
  • Rents have increased in the last 4 years nearly twice as fast as the CPI
  • Health Insurance premiums are going up an average of 4.2% this year – far more than the CPI
  • A closer look at Health Insurance Premiums reveals the depth of the problem, as that 4% number is largely derived by people losing their expensive, comprehensive coverage, and replacing it with the bare-bones ObamaCare policy
  • Worse, deductibles and out-of-pocket expenses for health care vastly expand the magnitude of the problem
  • For example, my Part D drug plan deductible is $70, and I was just notified that on January 1 this will increase to $350, a whopping 400% increase
  • This is, of course, not reported in the CPI
  • Since 2006, health insurance deductibles have risen by 94.6%, or nearly triple the CPI
  • In the same period, brand name medicine is up 141.3%, Big Macs are up 54.5%, cable TV is up 54.9%, Disney Magic Kingdom tickets are up 56.7%, 4-year college tuition is up 64%, and the toll on the Lincoln Tunnel is up by 150%
  • Remember, all this is in contrast to the CPI reported increase of 18.1%
  • The CPI assigns a total weight for all household medical expenses of 7.55%, of which health insurance is only 0.763%
  • I don’t know about you, but my medical expenses have been running over 20% for this year, and while higher than average, I would estimate that most of you far exceed the 7.55% in the CPI
  • Unless and until the government faces this problem, the middle class will continue to dissolve, and the lower income people will continue to be better off on welfare than work
  • Something’s got to give!

CFPs can help you read carefully and explain the jargon.  Call the show if on Saturday mornings at 10:00 at 904.222.8255 if you would like to discuss your personal experience with inflation and how it affects your budget!