Gold Bugs And Conspiracists: Stop Doubting The CPI

Includes: GLD
by: Thomas Bradshaw

It is something that is inescapable, it happens in the comment thread of about every article that discusses macroeconomics, gold (NYSEARCA:GLD), inflation, the Federal Reserve ... you name the subject, and the gold bugged conspiracy theorists will rush in to assure all that the Consumer Price Index is flawed.

Don't believe me? Well you haven't been paying attention then (and I would estimate that this article will be infested with bugs). For example watch this video of popular supporter of gold and self proclaimed Austrian economist Peter Schiff. Essentially he claims that CPI is a fraud.

Is Schiff right? Well, not really. I personally think Schiff is either dishonest and trying to prop up gold prices, or he actually has convinced himself that he is right.

Let's begin by examining CPI - Food and Beverage Index.

Food and Beverage Prices
(Click to enlarge)

We see that contrary to some claims, food and beverages are not skyrocketing, in fact the rate of inflation is at a historically low level. We did of course see a spike in food during 2008, and another spike because of the 2012 crop drought, but other than that food is not skyrocketing as the Peter Schiff gold bug types would have us believe.

What about energy, energy is also skyrocketing right?

Energy CPI
(Click to enlarge)

Again, a quick check of the facts shows otherwise. Energy has been increasing at one of the slowest monthly rates since the 1960's. It is true that the oil spill in 2010 drove up the price of oil, but other than that, energy inflation has been pretty tame.

Well who cares about food and energy, you haven't mentioned rent! Rent is increasing at the fastest monthly pace ever! Rent I tell you!

CPI Rent
(Click to enlarge)

Again, after seeing the actual index we can see that yes rent is starting to heat back up, but the monthly increase in price is much lower than one would assume.

Hello! You are ignoring medical care prices! Obamacare screws everyone, duh!

CPI medical care
(Click to enlarge)

While it is true that the cost of insurance is going up for many providers, it is actually also true that total medical care costs are at historically low growth levels.

Alright, perhaps I have established that inflation is actually at historically low levels, but for lots of gold bugs and conspiracy theorists, what I have shown is not sufficient. I have used government data to prove my case and many people simply think that the government is manipulating this data in order to give consumers confidence.

If only we could find some type of credible 3rd party that tracks inflation data, perhaps a well respected university or something of that sort. What did you just say? The Massachusetts Institute of Technology tracks inflation data? They have an index tracking prices online? Well surely this will prove how dishonest the government is with inflation data.

Argentina has been accused many times (here, here, and here) of manipulating their CPI, and fortunately MIT's BPP (Billion Price Project) collected data in Argentina. The chart below shows the difference between collected online prices and Argentinean official data ... a clear manipulation or failure of CPI accuracy. For the full MIT PDF report on South American inflation visit this link - there are explanations and various interesting graphs.

MIT BPP Argentina
(Click to enlarge)

So how does the United States CPI perform compared to MIT's data collection? Why don't you go have a look for yourself. Spoiler alert: CPI actually does a pretty good job at tracking inflation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.