In a recent newsletter update and video message, Peter Schiff explains how the official price inflation measurement is not reflecting the daily reality. That is because since the 1970’s the preferred government inflation metrics have changed thoroughly. Beginning in the early 1980’s the methodologies were altered to compensate for a variety of consumer behavior.
The new “chain weighted CPI” for instance incorporates changes in relative spending, substitution bias, and subjective improvements in product quality. If you simply focus on price, especially on those staple commodity goods and services that haven’t radically changed over the years, the underreporting of inflation becomes more apparent.
The conclusions should not come as a surprise to most of us. Our “intuition” already knows this but now it has also been proven statistically by Peter Schiff and his team. They conducted their own research to prove that real price inflation (the one that matters for 99% of citizens) is much higher than the official CPI index is revealing.
Therefore the team randomly identified price changes of 10 everyday goods and services over two separate 10 year periods, and then compared those changes to the reported changes in the Consumer Price Index (CPI) over the same period. The 10 selected items are: eggs, new cars, milk, gasoline, bread, rent of primary residence, coffee, dental services, potatoes, and electricity. Just to make sure, the team ran the same experiment with 10 different goods and services: sugar, airline tickets, butter, store bought beer, apples, public transportation, cereal, tires, beef and veal, and prescription drugs. The results were notably similar.
The prices were analyzed in the period between 1970 and 1980 and then again between 2002 and 2012, because these time frames both had big deficits and loose monetary policy. But they straddle the time in which the most significant changes to inflation measurement methodology took effect.
Between 1970 and 1980 the officially reported CPI rose a whopping 112%, and prices of the anlayzed basket of goods and services rose by 117%, just a 4% faster than the CPI. In contrast between 2002 and 2012 the CPI rose just 27.5%. But the basket much faster, accounting for a 62% difference! So the methods used in the 1970’s to calculate CPI effectively captured the price changes of the analyzed goods, but only got half of those movements more recently.
Peter Schiff’s team did the same calculation with newspapers and magazines. In fact, it is very easy to check those prices as they are printed on the covers. We analyzed the prices of America’s 10 most popular newspapers and magazines: the Wall Street Journal, the Washington Post, Time Magazine, Sports Illustrated, US News, World Report, News Week, the New York Times, USA Today and the Los Angeles Times. The prices in 1999 were compared with the prices today.
The average increase in the cover price of those ten newspapers and magazines is 131.5% versus an official price increase reported by the governmental statistics of 37.1%.
It is very interesting to have all these newspapers reporting on the fact that there is no inflation, fed by figures of the government, while apparently they did not notice what has happened with their own prices.
Moreover, a recent poll of likely voters conducted by Fox News in the weeks before the election, revealed that 41% of respondents identified “rising prices” as their top economic concern. This response beat out “unemployment” by nearly two to one.
The underreporting of price movements would explain why inflation is a concern on Main Street even while it’s not a concern on Pennsylvania Avenue. If these price changes in the experiments had been fully captured, CPI could currently be high enough to severely restrict Fed action to stimulate the economy.
Gold and silver are the antidote
Everyone who follows Peter Schiff his work knows that he is a big believer in gold and silver. The precious metals have historically been excellent ways to preserve one’s purchasing power over the long term. However, in today’s world they do not act well as a medium of exchange. Although Peter Schiff was able to prove that the corrupted currencies are not a store of value, they are still used predominantly for exchange. To solve this problem, Peter Schiff and his teams worldwide worked out a totally new service: the first Gold and Silver Debit Card. It looks like a traditional debit card, but it has some unique features that help people protect their purchasing power and profit from the real benefits of precious metals:
- Purchasing power is stored in gold or silver, protecting holders against price inflation.
- Ease of access to the metal: the holder can easily buy and own precious metals
- Metals are stored outside the banking system, solving the risk of safe storage.
- The holder is protected against capital controls.
- The risk for confiscation is minimized as the metals are stored in Australia at the Perth.
- Delivery of the metal can easily be requested.
Even if the holder wants to leave the country for whatever reason, there is no need to travel with physical metal holdings when card access is available. The debit card is accepted in over 210 countries and millions of merchants worldwide.
The gold and silver debit card serves multiple purposes in a way that has not been offered in any service before. It is an example of innovation in a way that stimulates usage of the metal.