Is there really low inflation in the United States?

As usual, a chart depicts quickly the true sense of the situation. On the graph below, on the far right, is the "official" CPI figure publicized as the core inflation number - and more importantly used to calculate many cost-of-living increases for retirements and pensions.  Note the rather low 1.1% "official" increase year on year.

Then there are the actual prices of some illustrative commodities (those things that are the raw materials for food and transport).  It is obvious the major price increases during just the past year, especially with the grains. (thanks to the good folks at Casey Research for compiling the chart).

Of course, this type of chart does not include such rising costs as health care, entertainment or housing.  And it also does not include all the low cost plastic and tech stuff (imported from China) one can find at the big box stores.  And of course, in many parts of the country, housing has cratered severely.

However, I think all of us realize that in our day-to-day lives prices are certainly much higher than 1% more than last year this time.  It is not an illusion.  Economist John Williams notes that since WWII the ways that consumer inflation is calculated has been continually tinkered with.  Increasingly over the past 25 years  starting with Alan Greenspan's term at the Federal Reserve, the means of valuing the  "basket of goods" used to track inflation was continually adjusted by such games as geometric weighting, chaining, and the newer concept of core.  

Shown below is the actual consumer inflation using Williams' traditional calculation (SGS) used for decades through WWII before the political shenanigans (CPI-U) began as a regular pattern.  As you see below, reflecting some of the commodity prices increases above, inflation can be seen actually at about 8%.

For those who are really interested in the formulas and rationale behind this, you can visit the excellent Shadow Government Statistics site.  I've met John several times at conferences.  He is the real deal - not flashy, but providing a clear window into the world of often arcane government economic statistics.  An in-depth review of the various inflation manipulations (done under both Democrat and Republican administrations) is contained in this analysis from an early SGS newsletter.

What does this mean?? 

What is means is that if you are simply holding savings in US dollar cash or low interest certificates, you are losing about 5-7% a year in purchasing power.  To protect yourself and maintain wealth, you need to consider diversifying investments in "hard assets" for the next few years - land, metals, perhaps shares of companies profiting from commodity increases, or even foreign currencies from commodity rich countries (such as Canada or Australia).