If the Numbers Look Bad - Change the Way You Calculate the Numbers

Charts courtesy of dshort.com (Click to Enlarge)

As a result of very high inflation numbers emanating from the 1970’s governments were faced with a very big problem. Union settlements forced adjustments to include a “COLA” adjustment to pensions and benefits and tax brackets. This beget a significant increase in employer and government liabilities as they had to “pay up” every year to account for inflation.

Not good. How do you fix the problem? Why you change the way the inflation index is calculated introducing something called “hedonistic delflators”. The Consumer Price Index has been fiddled twice over the last 20 years.

Headline inflation is about zero as reported in recent days according to current day calculations.

What would the rate be if they left the CPI calculation alone? Click the chart above to find out.

 You will not be surprised, but if you are a senior with indexed benefits, you are not going to be happy!

This entry was posted on 25. June 2009 at 06:43 and is filed under Inflation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.