Government Low-Balls Inflation, Fed Promises ZIRP For Years


1. Overview – Touching On Several Bases Today

2. Why Real Inflation is Higher Than Government Reports

3. Fed Remains Committed to Zero Interest Rates Indefinitely

4. Why The Fed Wants Inflation at 2% or Even Higher

Overview – Touching On Several Bases Today

In today’s letter, I’ll share my comments on several topics I find interesting. For starters, do you ever wonder why the official inflation statistics are so low, compared to what we see in the grocery store, what we pay for healthcare and the cost of housing, just to name a few?

Official government statistics continually show inflation is very low, below 2.5% or even lower for the past decade. Yet that’s certainly not what we feel when we pay our actual cost of living expenses. Most of us don’t believe our cost of living rises by 2% or less a year. I have some compelling evidence why what we’re thinking is right, which I will share today.

Following that discussion, I’ll move to the Federal Reserve Bank which just had its last policy meeting of the year. The Fed signaled it plans to keep short-term interest rates near zero indefinitely, as in several more years, unless things change.

The Fed also emphasized that it wants to see inflation considerably higher than it has been over the last several years, as reported by the government. The question is why the Fed is so hellbent on higher inflation. I’ll offer some thoughts below.

Why Real Inflation is Higher Than Government Reports

The US Bureau of Labor Statistics (BLS) reports the Consumer Price Index (CPI) and the Producer Price Index (PPI – wholesale prices) every month. The CPI rose 0.2% in November, according to the BLS, and was up only 1.2% for the 12 months ended November.

Chart showing Consumer Price Index