CHART: The Real Inflation Rate Is 11% According To CPI Calculations From 1980s (June Update)

The chart above has been updated to include data for the most recent month.
UPDATE - The real inflation numbers have now been updated thru May; it is above 10%.
UPDATE - Congress is discussing changing CPI calculation again, this time to save as much as $220 billion over ten years.
Methodology, data and details inside.
From Shadow Stats
The CPI on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980.  In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living. Further definition is provided in our CPI Glossary.  Further background on the SGS-Alternate CPI series is available in the Archives in the August 2006 SGS newsletter.

• Chart from John Williams Shadow Government Statistics

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By John Melloy
Executive Producer, CNBC's Fast Money
After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.

Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.

Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products, improvements in quality (i.e. iPad 2 costing the same as original iPad) and other things. Backing out more methods implemented in 1990 by the BLS still puts inflation at a 5.5 percent rate and getting worse, according to the calculations by the newsletter’s web site, Shadowstats.com.

“Near-term circumstances generally have continued to deteriorate,” said John Williams, creator of the site, in a new note out Tuesday. “Though not yet commonly recognized, there is both an intensifying double-dip recession and a rapidly escalating inflation problem.  Until such time as financial-market expectations catch up with underlying reality, reporting generally will continue to show higher-than-expected inflation and weaker-than-expected economic results in the month and months ahead.”

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