Analyst Claims Recent Inflation has Approached that of the 1970s

January 17th, 2011
in Background, econ_news

Econintersect:  John Williams, Shadow Stats, says that, when apples to apples comparisons are made, inflation over the past decade has been as high as 12% annual rate, close to 14%+ peak seen in the 1970's.  Note: An update was added January 19 - see end of article.

Follow up:

Changes were made in the way CPI was calculated in 1982 and again in the 1990s.
A second analyst, Doug Short of, has prepared a graphical presentation of the history of inflation.  One of the graphs in a recent article   shows the history of inflation and includes the effects of the changes made to the methodology in the past 30 years.
Go to article for larger graph image.
alternate inflation 1872 ro present

Sources:  Shadow Stats and GEI analysis.

Update added January 19:  The value and relevance of the Shadow Stats inflation number has been debated by a number of well established economists.  The GEI analysis (by Doug Short) expresses some of the concerns.  James Hamilton (a GEI guest author) has documented some of the well researched objections to Shadow Stats inflation calculations at Econbrowser, here and here.  This update was prompted by a comment from Jeff Miller. 

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  1. Jeff Miller says :

    The Shadow Stats site has an undeserved enduring popularity among conspiracy buffs, perma-bears, and armchair economists. No one checks the facts.

    There was a complete takedown by the BLS, reviewed by the team at Econbrowser, and so far un-refuted. Despite this, people keep citing this crackpot as if his data really meant something. No one can replicate his results.

    Here is a challenge to Steve, John, and Doug. Try it yourself. If you can't figure it out, quit giving him such credit. Here are the links:


    You should at least cite the other side of this story -- the side endorsed by the people who really move markets.

  2. admin (Member) Email says :

    John Lounsbury @Jeff Miller:

    Thanks for commenting, Jeff. I agree with your crticism and will update the news brief. I would add the following comments:

    1. You may not have clicked on the Doug Short link to the analysis article where he (politely) states:

    "As I’ve expressed elsewhere, my opinion is that the optimum method for calculating consumer prices is probably somewhere between the revised BLS method and the historic method preserved by Williams. However, government policy, the Federal Funds Rate, interest rates in general and decades of major business decisions have been fundamentally driven by the official BLS inflation data, not the alternate CPI. For this reason I think it best to take the alternate inflation data as a interesting, but not authoritative."

    2. Both Menzie Chinn and James Hamilton of Econbrowser are contributors here so we are aware of the quality of their work. It would be worthwhile to give some new exposure of their 2008-10 work on inflation metrics, so, if they think it worthwile, we post will them again here.

    3. I hope you will come back and leave another comment when you see a shortcoming. And we hope that sometime soon we can have you as guest author of a feature analysis or opinion article. We will have to find something that fits our "profile" which hasn't been published within the previous week or so at Seeking Alpha. We have told them we want avoid overlaps of content (except for posts by Steve and myself). We are not adverse to older posts that have a "timeless" theme. We have published something that was 11 years old and another article that was first published six years ago.

    If you have suggestions, please let us know.

  3. Jeff Miller Email says :

    John - Thanks for your thoughtful response. I have the greatest respect for all of you guys, which is why I read all of your work, including Doug's. I have also cited and linked to all of you.

    Let me try to explain why I am uncomfortable with Doug's "the truth is somewhere in the middle" conclusion.

    The measurement of price changes is very technical with many issues. There are people who are just as smart as us who have spent entire careers studying this. The Boskin Commission was bipartisan and the economics involved come from academics of all stripes. Decades later the AEA had a panel to review the findings. Basically they concluded that the Commission did not go far enough. The BLS has specifically refuted ShadowStats in the paper cited by Econbrowser.

    The problem is that everyone starts with a gut feeling about inflation. As in most things, people use that feeling rather than facts. We should be wary of assuming that we know more than smart specialists in any field, especially when we have not even read their work.

    I studied this issue a bit in the 70's when Wisconsin was considering indexing the income tax. What I learned is that the more you study it, the more you appreciate the technical issues.

    I wrote two pieces that are an easy introduction to the topic:

    These are a lot easier than reading the Boskin report.

    To summarize, this is not an issue where you have two reasonable viewpoints and something in the middle is correct. Instead you have a body of work that is broadly accepted by almost everyone who works professionally on the subject. Challengers must meet the normal scientific standards and peer review.

    Thanks for using your significant influence to let people see this viewpoint.


  4. admin (Member) Email says :

    John Lounsbury@Jeff Miller:

    Thanks for the comeback. We hope we can have some future analysis and opinion articles concerning CPI, what it means, how it is and is not related to the range of inflations that members of the populace actually experience and how factors affecting the cost of living have changed significantly over the past 30-60 years. I hope you will be one of the participants in this when we have sorted out how to present a cogent series of articles.

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