Statistics and Reality

According to the US Consumer Price Index (CPI) inflation hovered around 2.85% in 2007, and has been teetering between two and three percent annually since 2000. If this was gospel, the majority of Americans would be classified as heretics.

The cost of government entitlements, social security, unemployment compensation, bureaucratic overhead, education, medical care and municipal expenditures are all impacted by inflation.

Low inflation rates reduce mandated government payments, which in turn should keep tax growth down. Yet, the current Congress is preparing the largest tax increase in US history.

Although the tax bite of states is slowing, the budgets are exceeding the CPI rate of inflation. But to pretend that state and local governments are staying even with inflation is contradicted by reality.

The infrastructures under state jurisdiction are deteriorating. Preventive maintenance has been cut to the bone, repairs neglected and projects stalled. The budgets are borrowing from the future. The states’ balanced budgets have become a shell game.

Families see the cost of gasoline, home heating and groceries soaring. Americans are limping along. Reducing trips, turning down the thermostat and buying off-brand products only hides the inflation pressure measured by the CPI.

The quality of hard goods continually declines. No one believes the durability of the major and small appliances and tools they purchase today begin to equal the quality of yesterday. Again, inflation is buried in shoddier materials and lower standards.

The value of the dollar is shrinking in the international currency markets. The prices of goods purchased from China or Indonesia—lower in cost than American made goods—keep increasing as the dollar devaluates. This inflation is hidden in comparative costs as Corporate America continues to abandon local manufacturing.

Inflation benefits borrowers and pinches lenders because debts are re-paid in depreciated dollars. The greatest beneficiary of inflation is the federal government because it is the largest borrower in the world.

It is understood that deficits don’t reflect well on our nation’s political leaders. And tax increases are as popular as tooth decay. Low inflation numbers keep the cost of compulsory entitlement increases from rocketing. It protects politicians from making unpopular decisions.

Our representatives benefit politically from the pretense of low inflation. They have no reason to challenge the accuracy of the CPI numbers.

But the day of reckoning is approaching. Anyone responsible for a family budget knows that inflation is far worse than the government’s statistics indicate. Credit card debt, foreclosures and delinquencies are soaring. Family incomes are being stretched to their limits.

The next administration—Republican or Democratic—will come face to face with a major recession if the crushing inflation isn’t recognized.