Uncle Sam's number crunchers reported Wednesday that the American economy is, for now at least, safe from inflation. But they're lying to you. And so is the Federal Reserve Board, and the Massachusetts Institute of Technology, and a pan-ideological coalition of the nation's top economists.
Such is the view of the inflation-truther caucus, a Ron Paul-inspired movement that insists Democrats, Republicans, and the Fed are all collaborating in a mass conspiracy to hide inflation—and swindle senior citizens out of their rightful Social Security payments in the process.
It's great political messaging that allows the former Republican House member and his ilk to push their preferred monetary policy, all while catering to seniors and ripping into President Obama's economy. And the crusade is likely to resurface this fall as Janet Yellen seeks Senate confirmation as the Fed's next chairman. She plans to continue the stimulus-oriented easy-money policies of Chairman Ben Bernanke, the policies the truthers blame for driving a massive, although hidden, explosion in prices.
Just one problem: It's all nonsense. Five years into Bernanke's money-printing crusade, a raft of federal and private reports show no sign of high inflation, and if prices were skyrocketing, there's no practical way Congress could ever cover it up.
The standard measure of inflation—the Consumer Price Index—rose 0.2 percent in September, and just 1.2 percent for the 12 months up to that point. That's well below the Fed's 2 percent-per-year target, and other federal indexes of inflation say the CPI is currently overestimating the rate at which prices are rising. But whatever figures the government churns out, Congress has little or no influence over the final result.
"Congress lets the statistical agencies hire experts, and they have the freedom to choose the best methodologies available," said Keith Hall, a former Bureau of Labor Statistics commissioner and George W. Bush administration appointee. "It's definitely not a conspiracy."
The truthers often point to changes in how the government calculates inflation as proof of an effort to suppress it. But the CPI methodology has seen no major changes during Bernanke's tenure, said BLS economist Stephen Reed, so even if one argues that the statistical agencies are improperly measuring inflation, there's no evidence they are manipulating the numbers to hide a Fed-driven increase.
Many of the attacks on the BLS inflation calculations stem from a misunderstanding of what they're meant to measure, Hall said. The figure is a compilation of data on tens of thousands of goods meant to represent Americans' average rate of consumption, so it's unsurprising that for any one individual—or even any demographic group—the measure might not match up. "This is a cost-of-living index that reflects the average cost for everybody," he said. "Many people, maybe most people, don't actually consume those exact products."
But Ron Paul is having none of it.
"There's a definite plan by governments, joined in by both parties, to keep the CPI as low as possible so that one group suffers over another," the Texan and unrivaled spirit animal of the inflation-truther movement tells National Journal. As Paul sees it, an ongoing, covert attack on seniors is raging. Many benefits, including Social Security, are pegged to federal inflation indexes. By depressing those rates, he says, lawmakers can skimp on payments to seniors without having to answer for it publicly.
America's concerns about inflation run deep. And Paul is not alone in his belief that inflation is dramatically underreported. Economic historian Niall Ferguson called the CPI "bogus" back in 2011, writing that "double-digit inflation is back." And at least one member of the Senate Banking Committee, which will soon grill Yellen, is on board: Republican Tom Coburn of Oklahoma asserted during a hearing with Bernanke this summer that inflation is well over 8 percent.
These kinds of numbers aren't coming out of thin air. The American Institute for Economic Research has an inflation index—dubbed the Everyday Price Index—that looks more closely at daily purchases, such as food and fuel. Its measure has produced eye-catching inflation levels vastly higher than the CPI. Steven Cunningham, AIER's chief economist, says the BLS is doing good work without any conspiratorial intent but that its index fails to capture everyday life.
The big reason for the difference between government-measured inflation and the institute's yardstick is the comparatively vast number of goods the government is looking at compared with the EPI. The EPI's smaller pool means that factors such as fuel-price increases have an outsized impact on the measure of overall inflation. It also means, Cunningham argues, that the measure presents a more accurate picture of how price inflation is affecting Americans daily.
Some other outside measurements of inflation, however, look a lot like the government's. MIT's Billion Prices Project, which tracks online prices, has mirrored the CPI since 2009. Based on personal consumption expenditures, the Federal Reserve's own preferred measure of inflation, Bernanke has the best inflation record among Fed chiefs since World War II, American Enterprise Institute economist Mark J. Perry wrote in August.
So what else would explain the very real sense people have that prices for goods are booming well over 2 percent annually? "There's probably an element of human nature where people notice things whose price is changing a lot," Hall said. "There are tens of thousands of prices in the CPI, but they might notice the five that are going up."
Or, as Bernanke told Coburn this summer, the fact that wages are growing at a slower pace than inflation could be to blame, as could the tendency to focus on extremes—something Ron Paul knows a bit about.
Catherine Hollander contributed to this article.
This article appears in the November 2, 2013, edition of National Journal Magazine as Econononsense.