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The CPI, Food & Fuel

Feb 05, 13 The CPI, Food & Fuel

Invitations to the After Party

In a recent conversation, someone mentioned that they believe where Ron Paul is incorrect on economics and the Fed, is in suggesting that the real CPI (the Consumer Price Index, i.e. a measure of the cost of goods used in determining inflation rates) is much higher if you account for fuel and food prices. The government uses 2 separate calculations, but typically publishes that which doesn’t include fuel and food. The defense the government uses in not calculating these things into the rate of inflation is based on the idea that these prices are volatile and subject to speculative fluctuations. What you can’t discount is that these goods are very real costs for Americans and account for a very large percentage of the average household income. Just as supply and demand drive the cost of “non-volatile” goods, so too they drive the cost of food and fuel.




One must also consider that the government participates in price-fixing to further hide the real cost of these goods by subsidizing both the food and the energy industries. The calculations that do incorporate these goods, are then flawed. The real cost of gasoline and agricultural food products is actually much higher, because there is an unseen cost that is transferred from tax payer to producer in the form of subsidies. Whether or not you’re paying more at the pump, you’re still paying more for your fuel and food, it’s just a matter of fungibility (coming out of one pocket and going to the other).


So why does all of this matter? Because the purchasing power of your money is wholly dependent on a stable currency. In other words, when the government inflates the currency to devalue US debt, pump money into the economy, and encourage exports of US goods, it simultaneously drives up the cost of living because your money (your labor) is worth less. You need more money (labor) to buy the same products and services you did last year.

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