Someone mentioned artificially suppressed inflation in a thread..and now I can't find it. I was interested in reading up on and found a blog that had this information listed in it. Do you agree with this? Do you know of any other ways that inflation is suppressed that the author didn't mention? ....and I know that it has been going on for a long time, but what do you think the long term effects of this will be?
But why do Governments underreport inflation?
1. First and foremost to artificially boost economic growth (or GDP). It’s my belief that the US economy has been contracting since 2007, along with every other developed world country. Real inflation has probably been around 8-10% annually. Considering the GDP numbers they report are real growth numbers (already discounting for inflation), if they were to report real inflation .. they’d need to admit that the developed world is not growing but is actually shrinking 2-3% a year. (tax revenues are probably a better proxy for growth).
2. Paint a rosier picture about real wage growth numbers. Median US household income was ~57k in 1999 and ~53k today (adjusted for inflation). Now imagine instead of using 1% official inflation numbers, they’d use a more realistic 5%. That alone would bring real household income to 27k today (instead of 53k). People feel it in their day-to-day lives that something doesn’t add up but if the official numbers say otherwise .. they they must be right and I must be wrong. Imagine if people were to find out that their purchase power is >50% lower today than 16 years ago. There would be a revolution tomorrow!
3. Less social spending. Many of the government expenses are linked to the official inflation numbers. Pensions, salary increases, benefits, etc. If governments around the world were to report real inflation numbers, they’d be bankrupt now.
4. More tax collected. By underreporting inflation, the tax brackets are artificially set at a low level, which generates more revenue to governments. In the Netherlands for example everything you earn above 56k you pay 52% income tax. Next year they’ll probably report 1% inflation, which means the threshold will move to 56,560 EUR. If they were to report a more realistic number of 5% inflation .. the threshold would move to 58,800 EUR, meaning less taxes to the Dutch government.
5. Suppress price of gold / silver. If real inflation was properly captured by the CPI (inflation index), Gold would be much much higher, which would challenge fiat currencies and consequently the establishment. Many people argue Gold price is being manipulated. Not that I doubt that, but even if they’re not outright manipulating it (via the futures paper market) .. they may well be doing it by underreporting CPI inflation. As we know the main gold price drivers are: 1) direction of USD 2) real interest rates. By suppressing inflation they inflate the real interest rate, which favours paper yield-generating assets.
What are the other non-price variations of inflation?
Less quantity: Companies are finding creative and subtle ways to offer offer less quantities to disguise inflation, in ways that consumers don’t notice. People wouldn’t accept price increases of 5-10% a year but they do accept 19 tea bags (instead of 20 the year before, meaning 5% inflation) or smaller sizes for the same price.
Less Quality: A more subtle way to boost profits and hide inflation is to offer less quality. Chocolates have less cocoa, more water is added to foods (wines, meat, milk, etc), we use less good ingredients in food production. Not to mention the introduction of genetically modified foods (GMO), which cause cancer in the long term. How is this captured in the inflation rate? It’s not!
Battery spams / malfunctions: iPhones and MacBooks for example have short battery spams. After 1 year usage, the battery of both your computer and iPhone stars eroding much faster. This is certainly not a coincidence. There are very smart people at Apple designing batteries that will speed up battery deterioration faster than they otherwise should. If you buy an iPhone every 2 years instead of every 4 years .. that’s 100% inflation right there!
Geological inflation: It’s getting harder and harder to pull minerals / metals out of the ground. The low hanging fruit has been picked .. now it requires more expensive technology and labour force to extract these metals (they’re getting lower grade, getting harder to find, deeper and more expensive to mine). We are exhausting the planet Earth’s capacity to regenerate natural resources, thereby reducing the incremental marginal benefits.
Technological improvements: Farmers use better and better techniques to produce food, generating higher yield from same amount of land. But if we manage to do things cheaper, why are prices to the consumer not cheaper then? Why do companies keep all these productivity gains? Assuming their productivity is 2% higher each year and price to consumer remains the same as last year .. is inflation really 0% or rather 2%? Some food for thought…
Full article can be found here:
https://contrarianstraighttalker.wo...ation-and-why-do-governments-under-report-it/
But why do Governments underreport inflation?
1. First and foremost to artificially boost economic growth (or GDP). It’s my belief that the US economy has been contracting since 2007, along with every other developed world country. Real inflation has probably been around 8-10% annually. Considering the GDP numbers they report are real growth numbers (already discounting for inflation), if they were to report real inflation .. they’d need to admit that the developed world is not growing but is actually shrinking 2-3% a year. (tax revenues are probably a better proxy for growth).
2. Paint a rosier picture about real wage growth numbers. Median US household income was ~57k in 1999 and ~53k today (adjusted for inflation). Now imagine instead of using 1% official inflation numbers, they’d use a more realistic 5%. That alone would bring real household income to 27k today (instead of 53k). People feel it in their day-to-day lives that something doesn’t add up but if the official numbers say otherwise .. they they must be right and I must be wrong. Imagine if people were to find out that their purchase power is >50% lower today than 16 years ago. There would be a revolution tomorrow!
3. Less social spending. Many of the government expenses are linked to the official inflation numbers. Pensions, salary increases, benefits, etc. If governments around the world were to report real inflation numbers, they’d be bankrupt now.
4. More tax collected. By underreporting inflation, the tax brackets are artificially set at a low level, which generates more revenue to governments. In the Netherlands for example everything you earn above 56k you pay 52% income tax. Next year they’ll probably report 1% inflation, which means the threshold will move to 56,560 EUR. If they were to report a more realistic number of 5% inflation .. the threshold would move to 58,800 EUR, meaning less taxes to the Dutch government.
5. Suppress price of gold / silver. If real inflation was properly captured by the CPI (inflation index), Gold would be much much higher, which would challenge fiat currencies and consequently the establishment. Many people argue Gold price is being manipulated. Not that I doubt that, but even if they’re not outright manipulating it (via the futures paper market) .. they may well be doing it by underreporting CPI inflation. As we know the main gold price drivers are: 1) direction of USD 2) real interest rates. By suppressing inflation they inflate the real interest rate, which favours paper yield-generating assets.
What are the other non-price variations of inflation?
Less quantity: Companies are finding creative and subtle ways to offer offer less quantities to disguise inflation, in ways that consumers don’t notice. People wouldn’t accept price increases of 5-10% a year but they do accept 19 tea bags (instead of 20 the year before, meaning 5% inflation) or smaller sizes for the same price.
Less Quality: A more subtle way to boost profits and hide inflation is to offer less quality. Chocolates have less cocoa, more water is added to foods (wines, meat, milk, etc), we use less good ingredients in food production. Not to mention the introduction of genetically modified foods (GMO), which cause cancer in the long term. How is this captured in the inflation rate? It’s not!
Battery spams / malfunctions: iPhones and MacBooks for example have short battery spams. After 1 year usage, the battery of both your computer and iPhone stars eroding much faster. This is certainly not a coincidence. There are very smart people at Apple designing batteries that will speed up battery deterioration faster than they otherwise should. If you buy an iPhone every 2 years instead of every 4 years .. that’s 100% inflation right there!
Geological inflation: It’s getting harder and harder to pull minerals / metals out of the ground. The low hanging fruit has been picked .. now it requires more expensive technology and labour force to extract these metals (they’re getting lower grade, getting harder to find, deeper and more expensive to mine). We are exhausting the planet Earth’s capacity to regenerate natural resources, thereby reducing the incremental marginal benefits.
Technological improvements: Farmers use better and better techniques to produce food, generating higher yield from same amount of land. But if we manage to do things cheaper, why are prices to the consumer not cheaper then? Why do companies keep all these productivity gains? Assuming their productivity is 2% higher each year and price to consumer remains the same as last year .. is inflation really 0% or rather 2%? Some food for thought…
Full article can be found here:
https://contrarianstraighttalker.wo...ation-and-why-do-governments-under-report-it/
