Figure This

August 24th, 2012

During our Florida trip a few weeks ago, we stayed at a condo near Melbourne with a beautiful view of the Atlantic. Of course, since we commuted four times that week back to Orlando to Walt Disney World and Universal Studios, our beach time was limited. Time on the road, however, was lengthy – 72 miles each way. We filled up the car three times in eight days. (I didn’t realize until after our return the Jeep Patriot we rented averages less than 20 miles per gallon on the highway. Ouch!)

On vacation I typically don’t pay attention to what’s happening in the world; however, I knew something was up just by watching gas prices at the same station climb from $3.49 the day we arrived to $3.65 when we departed. I found out later oil rose while we were hanging out with Mickey & Friends.

It’s interesting how government accounting works. The Consumer Price Index is a ‘market basket’ of 80,000 goods the government measures each month to determine inflation. The ‘core inflation rate’ – which you most often hear quoted and the one the Fed uses to determine monetary policy – excludes food and energy prices. That will forever strike me as strange, since you spend a lot of your earnings on food and energy.

From 1914-2012, inflation averaged 3.4 percent in this country. Of course, there were plenty of years higher and many lower. Last month, the CPI was 1.4 percent. That’s darn near nothing.

Except… consider the ever-shrinking size of consumer goods. Bought toilet paper lately? How about ice cream? Potato chips? Noticed anything about the portions? They keep getting smaller and smaller and smaller. The staple of my diet cereal is a perfect example of figures lying. Prices haven’t changed for my Golden Grahams, but the box is now ‘Net Wt 12 Oz’ and much much smaller than five years ago.

The government is right. Prices aren’t rising. For reality, though, they might want to start measuring CPA: the Consumer Pocketbook Amount.

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