hr: Money

According to the Government’s figures, inflation is just 4%. That means, on an average, the cost of a diversified basket of goods has only risen by four percent.

Photo Credit: Mike Licht, NotionsCapital.com

However, most Americans know for a fact, that inflation has hit them harder than that. So why is it, that the government keeps telling us that Inflation is only a fraction of what it really is?

According to Alan Chernoff, who is an Inflation Expert, the government calculates inflation based on a Consumer Price Index (CPI), which determines which goods should be taken into account for determining Inflation. Also, each commodity has a ‘weight’ which shows just how important that commodity is in determining true inflation.

Chernoff shows that most commonly used commodities like rice, milk and flour, have increased in price by over 13%, whereas, their role in calculating the CPI is less that 1%! This is the reason that the CPI shows a value of inflation that is far lower than what the average American faces.

Also, the cost of Fuel Oil has increased by 48%, whereas the cost of Gas has increased by only 5%. Because of this, some people are hit much harder by inflation than others. Natural Gas also has a higher ‘weight’ since more peple use it. Items like computers haven’t increased as much in price.

So now you understand why you sometimes feel that inflation has increased much more than what the government says.