Ben Bernanke Must Have a Personal Shopper

Ben Bernanke Must Have A Personal Shopper

This article explains whythe CPI is not useful asa measurement. The ...More
This article explains whythe CPI is not useful asa measurement. Thearticle also explains howto really gaugeinflation. Less

Ben Bernanke Must Have a Personal Shopper

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This article explains why the CPI is not useful as a measurement. The article also explains how to really gauge inflation.

Ben Bernanke is so busy computing academic formulas that he forgot to go shopping and take a look at what's really going on out there. He is famously called helicopter Ben after he made the statement that he could drop money out of helicopters to fight deflation. Is that a joke? This guy has a PhD in economics and has studied the great depression for the most part of his career, yet he thinks these tactics will work when there are clear examples in history that prove otherwise. Unlimited money printing has never worked and it has been tried before. Eventually the local economy will fail under such policies as evidenced in Zimbabwe and Germany within the last century.

The greatest insult to our intelligence is the consumer price index (CPI). Financial freedom cannot be acheived if you don't understand this concept. For those of you who aren't sure what this is, it's simply a measurement the government uses to track inflation or rising prices of goods we buy. The mojor problem is that the CPI measurement conveniently leaves out price increases in food and energy (gasoline included) which are two of the most important goods all people buy regularly. Other tricks I have seen while shopping at the grocery store is less food being packaged in the same size bag, smaller portions for the same amount of money as last month, etc. You see, even if the price stays the same and you're getting less product, that is inflation. When you actually do the shopping, you'll start to get real world data that isn't watered down to make politicians look good. If you are one of those people that really trusts the CPI data, I beg you to reconsider. Many financial advisors will use this figure to advise you the minimum amount you need to make to not lose purchasing power on your money. If you only looked to keep up with the CPI measurement, you would be misled and actually be losing purchasing power because of inflation in energy and food which is not counted. The better number to look at is non-core CPI which does include food and energy. This figure is fluctuating between 1-2% higher than the core CPI number that is reported in the media.

The problem with the non-core number is that it averages inflation across all goods. For the average person, a large part of their income is spent on gas and food. These two areas are seeing much larger price increases than in other categories and this must be considered when planning investment strategies. Once you get to the real analysis, you may find that you need to grow your money at much more just to keep up with inflation. You can easily track inflation on your own by keeping a journal of gas and food prices when you do your shopping. This will actually be better data for you to use than those supplied by the government. How you become rich and famous? Not by trusting the CPI number and putting your money into a savings account!

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This article explains why the CPI is not useful as a measurement. The article also explains how to really gauge inflation.
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