Can't buy the government's inflation stats? Neither can he

Anyone who believes that the government lies, or at least fibs, about the real inflation rate will enjoy the latest commentary by the Pimco funds’ bond guru, Bill Gross.

How, he wonders, can the U.S. have an annualized inflation rate around 4% while global inflation indexes say prices are rising at about a 7% rate?

"Somebody’s been foolin’, perhaps foolin’ themselves," Gross writes from Newport Beach.

He goes on: "The correct measure of inflation matters in a number of areas, not the least of which are Social Security payments and wage-bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens."

If you can’t make it through Gross’ discussion of why the real U.S. inflation rate is higher than Uncle Sam’s stats say it is, go right to the end, where he spells out the investment implications:

"1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS [Treasury Inflation-Protected Securities], while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose price-to-earnings ratios are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies [Brazil, Russia, India, China] are obvious choices for investment dollars."

Read the full commentary here.

Photo: Bill Gross of Pimco. Andrew Harrer/Bloomberg News

Comments

[victor%20knopp]

the blind leading the blind

[GMi]

Gross's commentary hits the mark. There is absolutely no co-relation between the BLS figures versus the checkout counter.

It is a source of fascination to me too that the American people are willing to drink the coolaid doled out by the BLS.

When will we stop the mindless conservative/liberal demagogery and get down to understanding the serious problems this country faces?

[Bill]

Where do the crazed folks at BLS do their shopping and pump their ga$ ?? The so-called 'core rate' of inflation excludes food and fuel, lets walk the perps who thought up that fiction! What it takes to buy your food and fill your tank is a big fraction of any workingman's budget. Try to save money for that rainy day, HA! Now the greedy banks which needed big bailouts are paying about 2% on savings, less than any possible definition of inflation. You save, you lose.

[Jim in Laramie]

Read the logic in the tea leaves.......by pumping money into the economy and then underreporting the resultant inflation, government obligations are decreased. (read: social security)

[Dick]

If the government included food and fuel in the figures the inflation rate would be more real. To say that food and gasoline are not part of the core inflation figure is like saying that the lungs are not part of the core function of the body.

[lcva]

This might be a naive analysis, but I doubt that our domestic economic circumstances would have deteriorated so dramatically in the face of similar challenges before the 2000 presidential election, simply because at that time the US had the power and influence to protect itself. After seven years of gross mismanagement, we have a second-class currency, worth less than half of its European counterparts; huge chunks of our financial infrastructure have been sold off to non-US interests; and both our treasury and our military have been strained to the breaking point by an unnessary and unjustifiable war. Although the President who got us into this mess still doesn't realize it, there is not and never has been anything magical about the words "United States of America." We had global power and influence because we had the most vital economy, the strongest currency, were the least vulnerable to outside influences and, oh yes, had enough firepower to make things go our way if we had to. That's no longer the case, and we are all feeling the harsh effects of being just one more player in the global economy.