Amid the heated debates about inflation — and few now dispute that prices are rising — it would help if there were broader agreement about what the term actually means. When most commentators and policymakers talk about “inflation,” they rely on the government’s measures. Those official measures, however, were changed substantially in the 1980s and 1990s, which affects how current inflation is perceived.
Economist John Williams of ShadowStats argues that methodological changes adopted by the Bureau of Labor Statistics in the 1980s and 1990s materially understate the Consumer Price Index. Using pre-1980 methods, Williams estimates that CPI-style inflation would be much higher — roughly approaching double-digit rates at times — than the official series reports.
Part of the disagreement stems from trust and choice of data. If everyone relied on the same, transparently calculated series, the debate would be narrower. In practice, however, defining which data are relevant, collecting them rigorously, and analyzing them properly are all difficult tasks. A flaw in any one of those steps can distort the final measure.
Even modest changes in how inputs are weighted or which items are included can produce very different pictures of inflation. For example, sectors where the government plays a central role — such as health care, education, and housing programs — often show pronounced price increases that affect households differently than the overall index suggests.
That complexity helps explain why public discussion about inflation can seem so polarized: people are often comparing different indicators, timeframes, or definitions without realizing it. A clearer public understanding would require consistent, well-documented measures and broader awareness of the assumptions underlying each index.
It’s also important to remember that no single statistic can capture every aspect of how rising prices affect individuals. Measures such as the headline CPI, core CPI (which strips out volatile food and energy), the personal consumption expenditures index, and alternative series like ShadowStats each illuminate different facets of price change. Policymakers, researchers, and citizens benefit from considering multiple indicators and recognizing the limitations of any single series.
Ultimately, improving the quality of the conversation requires attention to data transparency, methodological clarity, and careful communication about what any given inflation figure does — and does not — represent. That won’t instantly resolve disagreements, but it will lead to more precise, useful debates about policy and household impacts.
ORIGINAL SOURCE: Inflation and Honest Data by John Mauldin at Mauldin Economics on 3/3/18