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Yankee

What U.s. Government Won't Reveal About Inflation

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My apologies if this has already been posted.

April 17 (Bloomberg) -- There's a great scene in the movie ``A Few Good Men'' in which a Navy lawyer is grilling a U.S. Marine officer played by Jack Nicholson.

``I want the truth,'' the lawyer insists. ``You can't handle the truth!'' Nicholson's character barks. I hear this dialogue in my head whenever there's a question on whether the government's Consumer Price Index, or CPI, is an honest gauge of living costs.

I'm convinced there's a much more insidious story that needs to be told as the bond and precious-metals markets gyrate daily over perceived inflation threats.

If the full impact of consumer-price increases were accounted for, investors would have a lot more to worry about, and you should prepare for a threat that's much greater than Labor Department reports indicate.

The government has a vested interest in keeping official inflation measures low. Everything from Social Security cost-of- living increases to marginal tax rates is adjusted annually to this all-important gauge.

The total cost of what we are paying for big-ticket items is much higher than what's reflected in the CPI.

Take housing costs, for example. The Bureau of Labor Statistics, or BLS, the U.S. Labor Department's agency that calculates the price index, estimates housing costs by figuring ``owners' equivalent rent,'' or a proxy of what homeowners would pay in average rent increases.

As the largest component of the CPI at 23 percent, housing represents a huge portion of the overall cost of living. Yet the Labor Department's indirect measure vastly underestimates actual housing costs since it doesn't reflect home-purchase prices, financing, maintenance or property taxes. Done any roofing, remodeling or painting lately? Have you noticed how much your property-tax bill has climbed to match higher home values?

How understated is the Labor Department's rent metric? Jim Floyd, senior analyst for Minneapolis-based Leuthold Group, an investment research firm, notes that ``since 1996, existing-home prices are up 81 percent, but the BLS owner-equivalent rent numbers are up only 30 percent over this entire period.''

``Housing is not factored into the CPI,'' says Chip Hanlon, president of Delta Global Advisors Inc., a Huntington Beach, California-based investment advisory firm. ``I've never seen a great answer as to what inflation really is.''

The government's housing-price figure is so low that Floyd estimates consumer inflation would be as much as 1.5 percentage points higher if actual housing costs were included in the CPI.

Full article:

http://quote.bloomberg.com/apps/news?pid=1...id=aC9ifJTez_Ak

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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