President Trump has been clamoring for the Federal Reserve to lower interest rates on the grounds that inflation is much lower than what’s being officially reported. It turns out Trump is spot on, with today’s real inflation rate being only one-third of the official metrics.
These numbers come from the real-time price aggregator Truflation, which monitors millions of prices daily. That is orders of magnitude higher than the Bureau of Labor Statistics (BLS), which observes only a few thousand prices three times per month.
According to Truflation, prices have risen an average of just 0.9 percent over the last 12 months. That’s about as good as it gets outside of a recession, especially when the Fed is engaged in money printing, euphemistically called “quantitative easing.”
Truflation’s annual inflation rate is now much lower than the official inflation rate of 2.7 percent reported by the consumer price index (CPI).
It is worth noting that Truflation typically correlates at 97 percent with the official CPI, meaning the indexes track closely with one another. Truflation is not some cockamamie guessing game but a highly accurate and scientific project to create up-to-the-minute information on inflation.
And Truflation is not usually so far below the CPI. In fact, Truflation was higher than official numbers under Biden, peaking at around 17 percent during Bidenflation, when the official CPI was closer to 9 percent.
Whenever there are sizeable differences between the two metrics, it’s worth noting why, because that helps indicate which one is correct.
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There are three big differences between Truflation and CPI: timing, weights, and the bizarre way the BLS counts housing costs.
Truflation monitors 35 million prices in real-time, scraping data directly, while the BLS literally sends out “secret shoppers” every couple of weeks. They manually count a tiny fraction of the prices measured by Truflation. Some of the data is a month old by the time it’s reported.
Second is weights. Every inflation index has to decide how much to weigh stuff because consumers don’t spend the same amount on everything. For example, the impact of rent doubling is much greater than the price of eggs doubling.
The BLS uses a single in-house survey that’s a year old, while Truflation supplements with Census Bureau updates, real-time credit card and transaction flows, and Nielsen's expenditure surveys.
These methodologies are relatively close on most aspects, except for the single largest expenditure Americans make: housing.
CPI assigns housing about one-third of its weight, whereas Truflation is closer to one in four.
That makes everything else weigh more in Truflation. So if gasoline or eggs are coming down, as they are now, it's a bigger deflation in Truflation.
But the kicker here is it's actually housing that's coming down now, along with rents. Even the slight easing of interest rates since over the last several months has brought more supply to the market, pushing down prices.
The even bigger impact is deporting two and a half million illegals, which frees up a lot of housing. Illegals tend to rent, and last month’s rents nationwide were down double digits at an annualized rate. Home prices are actually falling in deportation-heavy cities like Austin, Dallas, Tampa, and Miami.
But it's not just the weights—it's the bizarre lag BLS uses on housing. Instead of actually measuring house prices and interest rates, the BLS imputes a phantom number called “Owner’s Equivalent Rent” to guess what you’d receive if you rented the house in which you currently live.
Then, they delay that number by several months, on the rationale that most rents don't renegotiate every month. But that’s like saying we should use 2018 car prices because people keep their cars for eight years. Consequently, BLS’s metric is usually about eight to 12 months behind real-time changes in the housing market.
When both home prices and rents have been steadily increasing for many years without interruption, the official inflation numbers are reasonably accurate; they are less accurate when the housing market undergoes significant change.
This means the official numbers ignored the single biggest source of inflation under Biden—housing—and they're ignoring the single biggest source of deflation under Trump. They’ll keep ignoring it through 2027 until the lagging metrics catch up to reality.
But Americans don't want prices that are only a little higher than Biden—they want lower prices, or deflation. Trump's been throwing the Executive Order kitchen sink at costs in energy, housing, food, and healthcare, but the heavy lifting must come from Congress, especially in the form of lower government spending.
But lower interest rates would also bring relief to consumers, and if Trump’s new nominee for Fed Chairman Kevin Warsh is confirmed by the Senate, the President and the American people might just get the lower interest rates for which we’ve all been waiting.
E.J. Antoni, Ph.D., is chief economist at the Heritage Foundation.
Editor’s Note: Thanks to President Trump’s leadership and bold policies, America’s economy is back on track.
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