Is Inflation Being Underreported? Real Inflation Running at 7%-15%?!

Timestamps:
0:00 Is Inflation Running Hotter Than We Think?
0:12 The Reported Inflation Numbers
1:29 Changes to Measuring Inflation Over the Years
3:54 Some Claim Inflation is Running at 7%-15%?
4:52 Testing this "Higher Inflation" Claim
7:06 Counter Arguments that Inflation is Less Than Reported...

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Always remember, "You Don't Need More Money; You Need a Better Plan"

[rc]

I haven't seen a single comment on any article or video complaining that the government has been underreporting inflation for "forty years". What people are upset about is the staggering inflation we've experienced over the past three-and-a-half years. The "basket of goods" that most people routinely purchase (e.g., food, clothing, gasoline, utilities, insurance, etc.), and on which they spend most of their household budgets, has certainly grown much faster than the overall rate of inflation published by the current administration. This is why so many people feel that the federal government is gaslighting them regarding inflation. Their own experiences just don't reconcile to "the story".

[dlg]

No discussion about the rate of inflation is meaningful without the inclusion of wages in that discussion. Understanding the relationship between inflation and wage growth is crucial. Context matters.

[MichaelJayValueInvesting]

If you redo the price tables you have from 2020 to 2024, you will find that the true inflation rate was much higher than reported over the last 4 years.

[harrigill]

In 2015 I purchased a new truck. I recently purchased another new truck, same model, same basic features, same trim, etc. The new truck has more than doubled in price over nine years. That's 8%+.

[TheBanshee]

If substitutions didn't distort the actual long term inflation numbers there would be little difference between the basket of goods in the long run. The issue is that substitution will be compounded. 1 lb Porterhouse becomes select strip to flank to ground beef.

Swapping from housing price to rental price is even worse as rent is a liability where a house is an asset. (You will own nothing and be happy).

[J-D]

I once went to the grocery and my wife told me to buy a cucumber and I got a zuchini by accident...

A zuchini is NOT a cucumber. Ask me how I know.

[AltayHunter]

8:08 This is an excellent point. My personal inflation rate (which also factors in my lifestyle inflation) is much more significant to my retirement plans than CPI is, and easy for me to measure by simply tracking my expenses.

[nobeliefisok]

Thanks for the video! I was looking earlier, and hoping to get one from you soon. On topic, I have argued these same points with my conspiratorial friends for years. Its as if it takes about 6 months for them to forget again just how powerful compounding small numbers is. And why I have also spent years trying to get them to quit buying 1% or 2% management cost funds when they have a perfectly good S&P500 index fund that only costs 0.05% in their 401k list of investments.

[jgibbs]

Use the Big Mac inflation standard, in 1981 a Big Mac cost $1.30, to day it costs $5.69, That's roughly 3.5% annual inflation over the last 43 years. Median home price in 1981 about $70k, today $393k or 4.1% annually. As for the cars, I'n 1981 the avg was about $9K, today $41k or roughly 3.6% annually - they lasted longer, were easier to repair, and cheaper to maintain. -Bottom line, actual costs are higher than what the government says, just not 7% higher.

[lukewilcox]

your not taking into account the fact that production gets more efficient every year which decreases CPI so real in inflation is higher

[deangrisham]

A quarter beef I just bought cost as much as a 1/2 beef did only two years ago. There is no way inflation is in single digits

[nobeliefisok]

Suggestion for a video topic for me (and maybe others). You mention the spending smile a lot, and have referenced source documentation from Morningstar (which I have read, thankyou for pointing it out). But you have not delved into aspects of spending that don't really match up with a curved spend such as a fixed housing cost. Also some costs are stochastic, like buying a replacement vehicle or repairing an HVAC.

Using me as an example
First: I am planning to use a $3200 a month "budget" for all the random common things I do in life, like eating, buying random household necessities, utilities, gas, clothing, etc.
Second: I either downsize my house, and have no house payment, budgeting for insurance + taxes. Or I don't sell it (2.625% int), and its last payment is at 77, taxes and insurance continuing.
Third: I have a car payment now, but wont in retirement. But at some point I will need to replace it. One time buy, cant really budget for when that will happen. 5 years? 17 years?
Forth: Ill spend on vacation/travel. These effectively eat into the money I will be converting into my RothIRA from my 401k. So I need to get over that mental hurdle... I have not budgeted any travel costs in the $3200 core budget.

How do you figure out a spending smile for this? My master retirement spreadsheet models using 98.2/98.5/98.8/1.01 by decade compound reductions, still adjusting normal for inflation. This hits 75% at 90, (but still up due to inflation of course). But I only multiply the root $3200 budget.

[idis]

On the cost comparison table, most of the items increases is well over the 2.93x that CPI inflation would have you believe. Yes, inflation is not at a cumulative 7% since 1985, but it is also not at 2.80% that CPI claims.

Quality of goods: today a Ford Bronco is much better than a 1985 model. What about the food we eat or the clothes we wear or the health and care service we get; much worse quality today.

Also, peoples spending habits have changed. Most people today eat from a restaurant 10 times a week, whereas in 1985 going to a restaurant was once a week at most.

All governments have been massively under-reporting inflation. But my definition of massive is 1.5% per year.

Perhaps it is not inflation, but the dollar which is the issue. The dollar is becoming more worthless every year because the government is "printing" money rather than increasing taxes and becoming more efficient. The US government debt is unpayable and no one has any idea of what will happen.

In 1985 a family would have one breadwinner, and yet they could still afford to buy a house and send the kids to college or trade school.

[ShenandoahShelty]

Or I decide I'm not going to replace my steak with turkey patties. Turkey patties are not New York strip, no matter how many self-hypnosis sessions I hold trying to convince myself otherwise. I also think I'm losing ground at a faster rate than 2.8% per year annum. I guess my basket and the government's basket contain different items.

[chunpak]

I don't know where you are finding a private college for $40K a year. Any decent private college now costs $60K tuition.

[alphadogpack]

"shadow" is all I needed to see to discount the alleged underreporting. Paraphrasing the host, you don't need more things/people to blame, but better planning with available resources.

[waynv]

the selected goods pricelist was impressive, the bronco comparison didn't fit anywhere near in that group. "smarter, safer, more efficient cars have become" if they cost 3+x more! i'd much rather gat the 12K simple car

[MeltingRubberZ]

Dozen eggs is 1.99 in 2024? Where can I buy them?

[ndSprings]

Can the average family with a single earner have two kids, a car, a home, and afford to send those kids to college anymore? No. Wages are not rising with inflation. Inflation wins. You lose. :-(

[rudyardganuelas]

I recently went found my notebooks from 20 and 10 years ago and I can put some context to tech expenses too:
2004
Internet $160
Phonebill $110
Midtier laptop $1000
Midtier cellphone $170
Cable: $140
2014
Internet 120
Phonebill 100
Midtier laptop 1000
Midtier cellphone 300
Cable 0
2024
Internet 55
Phonebill 70
Midtier laptop 1000
Midtier cellphone 600
Cable 0

so the cost of technology has gone down considerably as well