Sometimes I forget how varied financial literacy is even amongst my own friends & family.
I was talking to my dad recently about how the inflation number the government puts out is a joke.
He was genuinely confused when he said, âHow do they do that?â
He had no idea that the CPI is manipulated to hide inflation.
1. The CPI basket changes over time
If steak gets too expensive, the model assumes youâll âsubstituteâ with chicken.
So the government counts the price of chicken⌠not the fact that you can no longer afford steak. Not to mention that there is a pharma industrial complex for anti-meat lobbying.
2. They use âhedonic adjustmentsâ
If a product is âbetterâ than last yearâlike your phoneâthey adjust the price down in the index because youâre âgetting more value.â
Even if you paid more dollars.
3. Housing is based on âOwnersâ Equivalent Rentâ
Instead of home prices, they ask homeowners: âWhat would your house rent for?â
This means housing inflation can be wildly understatedâespecially during bubbles.
4. Energy and food get downplayed
Core CPI removes them because theyâre âvolatileâ⌠but theyâre also the things people buy & use every single day.
Just to name a few.
Many people donât realize that the headline inflation number is:
⢠a model,
⢠full of assumptions,
⢠adjusted by economists,
⢠and not designed to track real world affordability.
Itâs not that the CPI is fakeâitâs just designed for policy, not for your wallet.
And once you explain that, people suddenly understand why the official â3% inflationâ never matches the lived reality of groceries, housing, insurance, and medical bills. So while the CPI is not âfakeâ itâs not exactly real either.
S/o to amazing Bitcoiners like
@Saifedean Ammous who have helped me understand this.