Thread by @jameslavish

Another Fed Meeting, another decision based on flawed metrics. One of them is the new CPI. Or shall I say the *New New CPI*?

Because the calculation has been sneakily adjusted again recently, and yes, it matters. Why and how?

Time for an inflation 🧵👇

🧐 Current CPI

First, for those who are new to the whole Fed Shell Game, or if you need a little refresher, a quick review of CPI:

The Consumer Price Index, also known as CPI, is the benchmark for U.S. inflation as calculated by the Bureau of Labor Statistics (the BLS).

You may have noticed recent controversy about the accuracy of the CPI and whether the BLS is understating inflation

People ask every time a new CPI reading is released: how can the prices of groceries, cars, houses, be so inflated, yet the CPI rises only a fraction of that?

Good questions, and ones I answered in an Informationist newsletter a number of months ago

If you’re interested in digging in deeper on CPI, you can find that here: jameslavish.substack.com/p/cpi-and-how-…

TL;DR: the CPI is a basket of goods and services priced period to period (month to month + year to year)

As these goods and services prices rise and fall, the avg price of the basket rises and falls, too.

The percentage that the basket rises and falls is called the CPI, and this can be positive or negative, depending on whether prices are rising or falling

OK, but is it accurate?

Well it sure doesn’t seem like it, especially as we watch prices of just about everything continue to step higher all around us

I mean, even at 6.0% last week, CPI seemed understated.

One of the main problems is that the CPI *used to* measure the price of a fixed basket of goods and services between two different periods

The measure was called a cost of goods index (COGI).

However, in recent years, the BLS decided that the CPI should be revised in order to reflect changes in the cost to maintain a constant standard of living

And so, the CPI evolved into what is known as a cost of living index (COLI).

So, weightings of goods and even the goods themselves can now change according to BLS's *interpretation* of consumers’ purchases

I.e., if people replace steak with pork because of cost, the basket weighting of steak goes down and an ‘equivalent’ measure of pork is substituted.

Problem solved, right?

No.

If CPI was a *fixed* basket of goods, like it used to be, then this *adjustment* could make inflation severely underreported

Here’s a chart from ShadowStats, reconciling the different methodologies, calculating the 1980 fixed basket of goods versus the current CPI:

Like I said, the BLS seems to be on a mission of obfuscation

As if there were any question, the BLS is at it again, having recently announced yet *another* change to how CPI will be calculated going forward.

🙄 The New CPI

From the BLS:

Starting 01/23...BLS plans to update weights annually for the [CPI] based on a single calendar year of data, using consumer expenditure data from 2021. This reflects a change from prior practice of updating weights biennially using 2yrs of data.

Notice the words: weights, annually, biennially…

What this means is, the Fed used to use two years of spending data to decide how to weight the goods in the CPI basket, and they would update the weights every two years, accordingly

Let’s unpack that, shall we?

Let's say, in January 2021 the avg consumer spent 4% of their total spending on steak and then in January 2022, that number dropped to 2%

As far as the BLS is concerned, in the old method, the weight of steak in the CPI basket of goods would be the avg of 2021 and 2022, or 3%.

In the new (and oh-so-improved) CPI calculation, the weighting is 2%, the reading from just last year, not the two prior years

You may ask, OK, why does this even matter?

Let’s look at what happened.

We all know that steak has become more expensive—much more expensive—in the last two years

And some people have been forced to switch out from eating steak to eating something cheaper, like ground beef or maybe chicken.

So, instead of the CPI number capturing the rise in steak as a bigger percentage of the total inflation rate (CPI), it now captures a smaller amount, because it is weighted *less* in the basket of goods.

In effect, the calculation merely looks the other way

The BLS claims that this is a more accurate measure of what people are spending their money on, so it’s a more accurate reading of inflation

I’m here to call BS on the BLS.

Cost of restaurants are up, people are eating out less? Give *Eating Away from Home* a lower weighting

Vacationing less because hotel prices and airfares are through the roof? Lower weight them

Eating fewer eggs?

Less fresh fruit?

You get the point.

Further, deeper manipulation of the already severely flawed calculation that the Fed claims super important in their decision making on interest rates and credit liquidity

And wow, isn’t it just auspicious timing that the CPI methodology was changed *mid-tightening cycle*?

🤨 The Fed’s Timing

This was announced just after the December CPI reading, which came in at 6.5% year over year, slightly down from November’s reading of 7.1%

Make no mistake. Prices are still rising, they’re just rising at a lower rate.

The next two readings were 6.4% and 6.0%

Surprise, surprise, the New New CPI was in effect for those two.

Because here’s the thing:

The government actually wants inflation. In fact, they need it

They just don’t want you to know how bad inflation actually is…

😵‍💫 A Wilderness of Mirrors

Many of you have heard me talk about this before, and you may be anticipating where I am going with all this

But for those of you who are new or have not heard me talk about it, we’ll get right to the point.

The US government has so much debt that it’s become a hole—a canyon—they cannot climb out of. They’re stuck and they know it

The debt spiral

If you’re new, you can read all about that here:
jameslavish.substack.com/p/-whats-a-deb…

and an updated thread about it here:

https://twitter.com/jameslavish/status/1636104435171737602?s=20

Bottom line, we have so much debt and are operating at such a deficit (the US will spend $2T+ more than it collects from taxes this year),

the Treasury needs a way to minimize the rate of growth of that debt

How?

Nominally inflated GDP

See, when there is a high rate of inflation, then the cost of goods sold inflates, companies’ revenues and earnings inflate, the stock market inflates, and taxes on all of that inflates.

But the Fed is in a heck of a pickle (they put themselves there, make no mistake)

Even with credit cracks showing in the system, Powell must be sure inflation does not burn out of control

Or rather, he cannot let inflation *appear* to be burning out of control.

So, between the Fed and the Treasury, they will do all they can to hide inflation with manipulated CPI numbers,

obscure the Fed balance sheet with terms like deferred asset to hide massive losses

hide special liquidity instruments, like the all new BTFP.

They have us all wandering through what the CIA calls a *wilderness of mirrors*, meant to confuse us, hide the truths, get us all turned around and upside down.

They would say it is meant to protect us, keep a stronghold on the US Treasury as the global reserve asset, the US Dollar as the global reserve currency

Some truth to that, maybe.

Question is, how long will the rest of the world put up with it? How long will they just shrug and accept the unending debasing of the US Dollar?

How long will the world accept negative real rates of returns on their US Treasuries?

How long will the *trust in US Treasuries* sustain this monumentally leveraged and broken system?

Because that's what this *all* rides on, folks

Pure and simple: *trust*

Hyper-inflation is not a choice

Recession? A dip in GDP?

Sure, that's OK, Powell 'has tools for that case'.

Namely, QE Infinity.

But make no mistake, all paths lead to the debasing of not just the US Dollar, but every fiat currency

It's just #math, as my good friend @FossGregfoss says.

And so, I own #gold, #silver, and #Bitcoin to protect myself

All of these should protect well against inevitable money printing and M2 expansion in the near future.

And #Bitcoin is my ultimate insurance against the someday inevitability of a collapse in fiat and hyper-inflation.

Tell me, what's in your wallet?

This thread is a summary of a recent Informationist Newsletter. If you enjoyed it, make sure to:

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