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Shadowstats presents what they claim to be the original methodology used by the government to calculate the rate of inflation in the U.S. but Shadowstats’ John Williams is not calculating inflation any differently. He is not using the 1980s or 1990s methodology… [Instead,] all he’s is doing is taking the CPI data and adding on an arbitrary constant to make it look like inflation is higher!
The above introductory comments are edited excerpts from an article* (azizonomics.com) entitled The Trouble With Shadowstats.
Aziz goes on to say in further edited excerpts:
Often, when I talk about inflation being low, people who disagree tend to cite John Williams’ Shadowstats as evidence that price inflation is not low at all.
Now, I don’t disagree with the idea that some people have experienced a higher level of price inflation than the CPI…what I do disagree with is bad statistical methodology. Shadowstats is built on the belief that the Bureau of Labor Statistics changed their methodology in the 1980s and 1990s, and that if we were using their original methodology the level of inflation would be much higher.
Shadowstats presents what they claim to be the original methodology but Shadowstats is not calculating inflation any differently. They are not using the 1980s or 1990s methodology that they believe would be higher. [Instead,] all Shadowstats is doing is taking the CPI data and adding on an arbitrary constant to make it look like inflation is higher!
This should be obvious from their data, which has the exact same curve as the CPI data at a higher level:
In fact, according to James Hamilton of Econbrowser, John Williams admitted in 2008 that his numbers are just inflated CPI data, saying: “I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an ad factor to the reported statistics.”
Price changes and inflation are important topics, and constructing alternate measures of inflation is a worthwhile activity. Researchers at MIT have tried to do this with their Billion Prices Project, which measures price trends across a much, much larger range of products and locations than CPI:
What the Billion Prices Project implies for Shadowstats is that the CPI is roughly correct, and there is no vast divergence between real-world price trends and the CPI number.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://azizonomics.com/2013/06/01/the-trouble-with-shadowstats/
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