U.S. consumers are more worried about inflation than about another stock market correction, according to a new Gallup Poll. 55% of respondents said they were very concerned about inflation.
There are a number of reasons that consumers might be reacting in this way, even though current CPI numbers have been very benign. Investors are no doubt watching the situation in Greece and realizing that although Greece can’t inflate their way out of their debt-they don’t have their own currency-the U.S. does have its own currency and can. Historically, inflation has been a more palatable solution for politicians than cutting spending. Spending cuts make people angry (Exhibit 1: Greece), but inflation often goes under the radar.
Consumers’ worries may also be rooted in a belief that CPI numbers understate the actual level of inflation. ShadowStats.com keeps track of CPI data the way it was originally kept:
… the CPI was measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept. The identical basket of goods would be priced at prevailing market costs for each period, and the period-to-period change in the cost of that market basket represented the rate of inflation in terms of maintaining a constant standard of living.
Over time, various adjustments were made in CPI in order to reduce the reported rate of inflation. ShadowStats ignores all that and has continued to price the same fixed basket of goods.
Courtesy: ShadowStats.com
The level of inflation in that fixed basket may surprise you, although it’s probably more similar to what you notice when you go to the grocery store or buy gasoline for your car. And that may be one reason why consumers are worried about inflation-they know it’s already higher than it is being reported. Unfortunately, the Gallup Poll did not include a question like “How concerned are you that government statistics are under-reporting the CPI?”
The wonderful thing about free markets is that currency exchange rates and market prices will often adjust for all of the chicanery that goes on. Pay attention to what is going on and follow the trends. As the old saying goes, “in price, there is knowledge.”
Posted by Mike Moody 
