Comments on: Is the CPI-U a true measure of inflation? http://www.savings-bond-advisor.com/is-the-cpi-u-a-true-measure-of-inflation/ Fri, 29 Aug 2008 20:39:51 +0000 http://wordpress.org/?v=2.0.4 by: Tom Adams http://www.savings-bond-advisor.com/is-the-cpi-u-a-true-measure-of-inflation/#comment-16005 Thu, 07 Feb 2008 16:26:44 +0000 http://www.savings-bond-advisor.com/is-the-cpi-u-a-true-measure-of-inflation/#comment-16005 There's a website called Shadow Government Statistics that has an interesting analysis of this issue of <a href="http://www.shadowstats.com/article/56" rel="nofollow">the CPI-U underestimating inflation</a>. Tom Adams There's a website called Shadow Government Statistics that has an interesting analysis of this issue of the CPI-U underestimating inflation.

Tom Adams

]]> by: Paul http://www.savings-bond-advisor.com/is-the-cpi-u-a-true-measure-of-inflation/#comment-15937 Tue, 05 Feb 2008 06:12:24 +0000 http://www.savings-bond-advisor.com/is-the-cpi-u-a-true-measure-of-inflation/#comment-15937 Was said: Here is a theory that I have on this issue … as long as the market is following the same inflation index to compare inflation indexed vs. non-inflation indexed investments, it doesn't matter what the index is. I think the CPI does a good job of being that accepted standard. TRUE! The key word however is "If". The problem is (and you can read on it), the CPI is not at all the "same index". It is not your father's CPI. Since Clinton the the CPI has been terribly mutated and is not at all a reflection of true inflation. I do believe that BLS only refers to it now a "measure of consumer preference". Having said that...an "official" rate (and I-bond payment) of inflation of 4% would stink if real inflation was something like 10% (sadly, the yardstick actually 45 inches long). But it is still 4% better than being under your mattress! Trust, but verify. Was said:
Here is a theory that I have on this issue … as long as the market is following the same inflation index to compare inflation indexed vs. non-inflation indexed investments, it doesn't matter what the index is. I think the CPI does a good job of being that accepted standard.

TRUE! The key word however is "If". The problem is (and you can read on it), the CPI is not at all the "same index". It is not your father's CPI. Since Clinton the the CPI has been terribly mutated and is not at all a reflection of true inflation. I do believe that BLS only refers to it now a "measure of consumer preference".

Having said that…an "official" rate (and I-bond payment) of inflation of 4% would stink if real inflation was something like 10% (sadly, the yardstick actually 45 inches long). But it is still 4% better than being under your mattress!

Trust, but verify.

]]> by: Mario http://www.savings-bond-advisor.com/is-the-cpi-u-a-true-measure-of-inflation/#comment-372 Sun, 04 Jun 2006 02:56:33 +0000 http://www.savings-bond-advisor.com/is-the-cpi-u-a-true-measure-of-inflation/#comment-372 Here is a theory that I have on this issue ... as long as the market is following the same inflation index to compare inflation indexed vs. non-inflation indexed investments, it doesn't matter what the index is. I think the CPI does a good job of being that accepted standard. For instance, bond investors will demand a certain inflation premium for their bond investments, which should reflect some sort of future inflation expectation. If you compare the actual returns from TIPS with other bond issues, you'll find they are actually pretty close, since they both orient themselves on CPI (TIPS should be a little lower, since non-indexed bonds also demand a premium for taking the inflation risk itself). So, regardless if actual inflation is 3% or 10%, you can only measure the inflation indexed issue to other investment opportunities available, and usually they won't be doing much better than the TIPS or I bond. For instance, if you compare I bonds to 5 year CDs available in the last couple of years, they were always pretty close. Here is a theory that I have on this issue … as long as the market is following the same inflation index to compare inflation indexed vs. non-inflation indexed investments, it doesn't matter what the index is. I think the CPI does a good job of being that accepted standard.

For instance, bond investors will demand a certain inflation premium for their bond investments, which should reflect some sort of future inflation expectation. If you compare the actual returns from TIPS with other bond issues, you'll find they are actually pretty close, since they both orient themselves on CPI (TIPS should be a little lower, since non-indexed bonds also demand a premium for taking the inflation risk itself).

So, regardless if actual inflation is 3% or 10%, you can only measure the inflation indexed issue to other investment opportunities available, and usually they won't be doing much better than the TIPS or I bond. For instance, if you compare I bonds to 5 year CDs available in the last couple of years, they were always pretty close.

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