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"Americans splurged on a wide range of goods and services for the third straight month, suggesting the U.S. economy grew somewhat faster than expected in the first quarter."

So reads the headline at Dow Jones' Marketwatch. The article goes on to say that the Commerce Department has released new retail sales numbers for March, showing retail sales up by 0.8% for the month. If this were true, it would be great news. Unfortunately, retail sales for March, in real terms, were down significantly, after subtracting out inflation.

The mainstream business media doesn't appear to do much work to determine whether or not they are shoveling BS down our throats. The most recent retail sales figures are yet another example of that problem. On the surface, things look rosy. But, dig a little deeper, and all the warts appear.

Retail sales numbers report gross sales in dollar amounts, not in terms of the number of goods received. In order to know whether or not people are actually buying more, however, you have to consider whether the higher number represents greater consumption propensity, or just the after-effects of inflation.

Inflation can be measured in many ways, including the CPI issued by the U.S. Department of Labor Statistics (BLS). According to the BLS, the raw consumer price inflation (CPI) rate for March over February was 0.8%, and the seasonally adjusted rate was 0.3%. By subtracting this from the retail sales numbers disseminated by the Commerce Department, we conclude that there was either no retail sales increase or a much lower 0.5% increase.

But the BLS CPI is a very flawed measure in other ways. The agency has been widely criticized for including highly subjective statistical models in its CPI calculation. It creates, for example, artificial price reduction by using so-called "hedonic" adjustment and product substitution theory. This results in a lower reported inflation rate. A discussion of this problem can be found at shadowstats.com.

More important, however, is that the BLS version of CPI also includes housing prices. Home prices continue to fall rapidly even as most other prices rise sharply. It would be better to find an index restricted to retail sales only. Thankfully, just such an index exists. It is known as the "everyday price index" (EPI), and is published by the American Institute for Economic Research (AIER).

The EPI reflects the price of goods and services people tend to buy frequently, such as food, utilities and fuel. According to AIER, the EPI inflation rate ran at 1.9% in March. That means that, in reality, rather than increasing, the sale of retail goods decreased by an annualized rate of 13.2% in March, 2012.

That, to say the least, is terrible news. The numbers show that we have a lot of inflation in the midst of a declining economy. In an earlier era, that was not known as a retail sales gain. Back in the 1970s, it was known as "stagflation." In spite of the rosy headlines, the latest numbers are actually telling we are in the midst of rather severe stagflation. Investors who choose to ignore that reality by accepting the rosy view presented by mainstream media will end up badly burned.

Source: March Retail Sales: A Decline At An Annualized Rate Of 13.2%