Recent US inflation data has once again sparked excitement on Wall Street, prompting hyper-sensitive markets to reassess the likely path for interest rates over the remainder of 2024 and 2025. Many believe that the battle against inflation has been won. However, Main Street seems to strongly disagree. According to a recent Pew Research Center survey, 62% of Americans, across both political parties, still consider inflation a very significant issue.
The core of the problem lies in the construction of the Consumer Price Index (CPI) basket, which is produced monthly by the US Bureau of Labor Statistics and serves as the primary measure of aggregate inflation. The CPI, however, does not accurately reflect the cost-of-living experiences of ordinary working-class Americans. This discrepancy is a major issue, as the CPI basket is used to benchmark salary increases and returns on investment portfolios for retirement plans.
Despite salaries and portfolio returns that match or slightly exceed the CPI, many Americans find themselves struggling to maintain their standard of living. This is evident from the record number of people relying on entitlement programmes, the 52 million Americans living in ‘distressed zip codes,’ and the rising rates of credit card delinquencies.
To address these issues, Ed Butowski created the Chapwood Index, which aims to correct the biases and adjustments introduced into the CPI basket calculation since 1983. According to Butowski, these adjustments have under-reported the real cost of living by approximately 7-8% per annum. The Chapwood Index collects data from Facebook and other social media platforms to track the 150 most frequently used items by American households. This price-weighted index covers 50 major metropolitan areas and is published annually.
The Chapwood Index aligns closely with the original CPI calculations produced by John Williams’ Shadow Government Statistics, shedding light on why many Americans feel financially worse off despite headlines about ‘real’ wage increases. The persistent feeling of economic hardship among Americans highlights that, for many, the inflation battle is far from over. As the US election approaches, inflation remains a highly charged issue, with many citizens feeling increasingly vocal about their financial struggles.
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