Inflation is higher than the government figure for the following reason: If inflation is defined as the increase in cost to buy a set of products from one period to another. One dozen large publix eggs purchased January 1st compared to one dozen publix large eggs purchased May 1st.
What economists have done (come to your own conclusion as to why) is they use substitutions, which suppresses the figure. Lets say the above dozen large publix eggs cost 1.00 on Jan 1. Instead of comparing it to 1dz large publix eggs on May1, they will compare it to a different, less expensive brand of eggs (ie uncle googies eggs). A consumer that purchased a cheesecake each week for desert for the family may now buy cheaper jello. In this case it would show a decrease in spending.
They try and take into account that people would substitute cheaper, even different products. IMO inflation should be comparing the exact same items from one period to another.
THey even try to take into account the consumer buying fewer items (again, you figure out why they would go through such gymnastics to come up with a lower number). The example given:
A consumer may change their behaviour due to rising prices. instead of buying a container with 12 cupcakes, they buy a container with fewer cupcakes, switch to a cheaper brand or shop at a discount store where cupcakes are cheaper. To factor in that behavior, the government tweaked how it calculates inflation.
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