Wednesday, April 13, 2011

Inflation Higher According To Old Measure

A reader wants me to comment on a CNBC article that argues that inflation according to the old measurement is 9.6% rather than the expected 2.6% according to the new methodology.

This is an unplausible estimate as it suggests that real growth is and has been during the last few years as bad as during the worse parts of the recessions of the 1970s and early 1980s.

Still, while John William's numbers exaggerate inflation, it is probably true that the official numbers underestimate inflation. And regardless of whether the old or new methodology is right, there can be no doubt that the revision in methodology has lowered official inflation, something that given a certain nominal growth means that it has increased official real growth. This in turn means that the slowdown in growth is even worse than the official numbers suggests.