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Does the US government voluntarily underreport inflation?

The Consumer Price Index claims to reflect "changes in the prices paid by urban consumers for a representative basket of goods and services." The "Personal Consumer Expenditures Price Index" is also, I believe, produced by the government.

On their face, such statistics do not seem to show inflation at a particularly high level. However, there seems to be a widespread perception of high inflation in the United States, at least among certain constituencies.

Google was said to be developing an inflation index derived from Web spidering (although, amusingly, a Google search doesn't bring up any primary documents. This caused some excitement because it would presumably work with larger datasets and without any kind of political tampering. But subsequent to an initial flurry of reports, it seems little has come of that.

Are the CPI and PCEPI understating the inflation being experienced by most (or some well-defined subset of) Americans?

UPDATE: MIT's Billion Prices Project http://bpp.mit.edu/usa/ seems to track slightly higher than the CPI and considerably lower than the "Shadow Government" numbers.

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    This is a great question. There are a number of considerations, including the fact that some things are often excluded from inflation statistics (gas, food), and the debt has a downward effect on the currency which reduces purchasing power of individuals abroad and importers.
    – Brian M. Hunt
    May 14, 2011 at 0:50
  • The very first section of bls.gov/news.release/cpi.t02.htm is about "food and beverages." There are additional line items for "Motor Fuel" and the topic of "Energy" as a whole is dealt with. The data are there. PCEPI explicitly excludes food and gas (as does the "Core CPI") but this is claimed to be about volatility. Certainly fuel has been highly volatile in recent years.
    – Larry OBrien
    May 14, 2011 at 18:10
  • P.S. For the 6 months ending Apr 11, the inflation rate for "Food & Beverages" was reported as 5% annual. The inflation for Motor Fuel was 61%.
    – Larry OBrien
    May 14, 2011 at 18:15
  • not sure about the US, but in the Netherlands the official government inflation figures don't include tax hikes and increases in some other prices in the inflation figures. Those are typically higher than the average inflation so what the consumer feels is worse than the reported figure (e.g. they might report 2% inflation but have increased the tax burden by 5%).
    – jwenting
    Jul 1, 2011 at 6:38
  • I'm closing this as a duplicate of the other question.
    – Borror0
    Feb 11, 2012 at 16:16

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The problem here is in how you define "inflation" and in the methodology differences in calculating it.

As a great example of the latter, see Shadow Government Statistics's graph showing inflation using current vs. 1980 methodology:

Alternate Inflation Charts

The CPI chart on the home page reflects our estimate of inflation for today as if it were calculated the same way it was in 1990. The CPI on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980. In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.

enter image description here

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  • That's just the sort of thing I was hoping to find, but at those links I could not locate their technique, other than the too vague "as if in 1980." What accounts for the different values?
    – Larry OBrien
    May 16, 2011 at 18:16
  • @Larry - it's detailed there: shadowstats.com/article/aa871
    – user5341
    May 16, 2011 at 18:21
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    After a little investigation, it seems that this is a legitimate argument: if two different products within a given category inflate at different rates, the BLS uses geometric weighting to model an assumed shift in customer behavior. This is only within a specific category (e.g., "Apples in Boston") and so BLS argues it does not reflect a qualitative change in "life style." Same with outlets (e.g., if big box stores inflate slower than convenience stores). J. Williams at above site essentially argues "substitution is substitution."
    – Larry OBrien
    May 17, 2011 at 1:28
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    This is most interesting when people want to compare the "official" statistics from today's [horrible|wonderful] economic climate to thought from year when a different evaluator was used and don't [notice|acknowledge] the difference.
    – dmckee --- ex-moderator kitten
    Jun 30, 2011 at 2:53

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