Butowsky, who runs Chapwood Investments, got peeved about what he believes are intentionally understated government inflation calculations, and how they affect not only his investors, but seniors who receive retirement benefits. He decided to look around to see if anyone else shared his suspicions, and came upon research conducted by John Williams – not the Stars Wars composer – whose work can be found at www.shadowstats.com. Mr. Williams sells a newsletter that contains his calculations of the real inflation numbers. The pitch on his website states “Have you ever wondered why the CPI, GDP, and employment numbers run counter to your personal and business experiences? The problem lies in biased and often-manipulated government reporting.” Butowsky knew he was on to something.
We called the BLS to get an understanding of their procedure. They informed us that they analyze 80,000 costs every month, compare them to the equivalent costs for the prior year, and then perform a statistical weighting based on the relative impact of each item. For example, the largest component in their analysis is housing, which they claim has increased 2.8% since mid-2011. When we asked about the soaring costs of food, they replied that these prices had risen 1.9% for in-home food and 2.9% for dining out. Of course, these increases vary by region, and the BLS frankly admits that their price comparisons are not region-specific, but are intended to produce an aggregate, blended number for the nation.
Butowsky doesn’t buy it. He feels that even though the Consumer Price Index (CPI) has been revamped twice in the past 50 years, it’s still way off the mark. If investors merely aim to achieve returns that exceed an artificially low inflation rate, then the actual value of their investments ends up going down. More importantly, Butowsky stated “This is why people are more dependent on government.” If their earnings or pay increases are based on false inflationary numbers, they end up getting squeezed and must look elsewhere to balance their budgets.