While the measurement of inflation varies wildly depending on which economist you talk to, here we will examine the official figures published by the Bureau of Labor Statistics (BLS): CPI or Consumer Price Index. The purpose of publishing CPI is to measure inflation and/or deflation, the decreased or increased buying power of the U.S. dollar. Awareness of inflation is essentially an awareness of how much our central banking system, the Federal Reserve, is printing or destroying money through “monetary policy.” This side of economics can get confusing, but it doesn’t have to be. This account will be an understandable explanation intended for accountants and laymen alike.

CPI is not calculated the same today as in the 70s & 80s

While remarkably high inflation is a key part of our memory of the 70s and 80s, if today’s CPI calculation methods were applied to the 70s & 80s, the CPI figures would be revised to show very low inflation – probably under 6%. Why? Two important concepts have [Read more...]