You may be sick of reading about inflation, but bear with me. Undoubtedly you’ve felt the pain of price increases this year, from food to gas to housing to medical care. And in all likelihood those price increases are going to continue well into the next year. But what if I told you that the problem is worse than the government wants to admit? And what if I told you that the government might try to do everything it can to understate the inflation problem?
This isn’t anything new. Both the definition of inflation and the makeup of the “basket” of goods and services that are used to calculate inflation figures have changed over the decades. And previous changes to that basket have served to understate the inflation rate for years.
Economists like John Williams at Shadowstats have long been publishing the inflation rate figures calculated according to previous methodology, and the figures are significantly higher than what the government reports today. And now the government may be trying to make even more changes to the way it calculates inflation, the effect of which could be to tamp down inflation rate figures right as they’re starting to climb.
It has become clear to the Biden administration and to the Federal Reserve that inflation is starting to rise out of control. And now the government is scrambling to do damage control so that its credibility with regard to inflation isn’t called into question. So don’t be surprised to see headline inflation figures getting lower next year due to changes the government makes in its calculations, not because of falling prices.
Government Inflation Manipulation
Manipulation of economic statistics isn’t anything new. It’s been done by governments around the world for decades, some being more obvious about it than others. In the US, inflation figures have been particularly subject to manipulation, for various reasons.
On the one hand, lower inflation rates mean lower cost of living adjustments (COLA) for Social Security and other government benefit programs. On the other hand, lower inflation rates also keep the public in the dark about just how bad inflation really is. There are two primary ways the government can manipulate inflation rates to make them seem lower than they actually are.
1.) Basket Changes
The first way the government can manipulate inflation rates is to change the basket of goods and services that make up the official inflation rate. In this way, price rises in some sectors of the economy that would otherwise drive up inflation rates can be mitigated. Of course, the problem with this is that inflation rates end up becoming less a measure of actual inflation and more a measure of how consumers respond to inflation.
Let’s say that the average household spends 20% of its income on rent, 30% on food, and 10% on energy. But due to rising prices, that household cuts back on food and energy spending so that they make up less of its monthly spending, say 25% and 8% respectively. When the government adjusts the basket of goods and services, the price increases in food and energy end up being undercounted.
But because those changes are made as a result of consumers changing their behavior because of rising prices, the inflation figures don’t actually track price increases, they track consumers reducing their spending as a result of rising prices. So these basket changes end up understating the actual impact of price increases and the rate at which prices are rising.
2.) Hedonic Adjustments
The same goes for the hedonic adjustments that the government periodically makes to its inflation figures. A hedonic adjustment is supposed to be made to account for changing consumer tastes. It’s probably most important when it comes to purchases of technology such as computers and cell phones. Obviously the types of computers and phones being purchased today are far more powerful than those 20 years ago, and that needs to be accounted for.
But where these hedonic adjustments go awry is when it comes to purchases of staples such as food. Let’s say the price of your chuck roast goes from $4.99 a pound to $8.99 a pound. As a result you start eating more bottom round roast at $3.99 a pound or ground beef at $2.99 a pound.
Common sense would dictate that this means inflation of your beef purchases is rising at 80%, since that’s how much your roast increased in price. But because you shifted your consumption to cheaper cuts of meat, it gets calculated as a price decrease, and the government claims that you’re actually better off because there’s no inflation.
The reality of inflation is that if you’re paying the same amount of money for an inferior product, your standard of living is worse off. If you have to work 2-3 jobs to pay for things that previously required only working one job, you’re worse off due to inflation. But the government’s official figures will try to tell you that everything is just fine and that inflation isn’t a problem, thanks to these hedonic adjustments.
Look Critically at Inflation Numbers
It’s important to keep this in mind when you’re looking at headline inflation numbers and deciding how inflation will affect you. There’s no doubt that inflation will affect you as a consumer, as the prices of food, gas, clothing, and housing will continue to rise. But you also have to think about how rising inflation will affect you as an investor.
If you’re saving for retirement, you’ve likely benefited from years of low inflation, or at least low official inflation rates. With inflation rising to close to 7% today, poised to continue increasing, and possibly sticking around for months or even years, inflation could take a much bigger bite out of your retirement savings than you ever expected. And now is the time to start protecting your savings against inflation, if you haven’t done so already.
Many investors have already begun to protect their savings with gold and silver, trusting in the precious metals that have helped protect wealth and assets for hundreds of years. Gold and silver’s reputation for maintaining value in the face of high inflation is well known and deserved. During the stagflation of the 1970s, for instance, gold and silver made average annualized gains of over 30% over the course of the decade.
If the 2020s end up being another stagflationary decade like the 1970s, gold and silver could demonstrate similar performance, and could protect the assets of those who trusted in their protective abilities. And with the variety of products available for those interested in gold and silver, buying gold and silver to protect your assets doesn’t have to be difficult.
That’s particularly valuable if you have tax-advantaged assets that you want to protect, such as in a 401(k), 403(b), TSP, IRA or similar account. You can transfer assets from those accounts tax-free into a precious metals IRA, allowing you to hold physical gold and silver coins or bars in an IRA while still enjoying all the same tax advantages as your existing retirement accounts.
Or if you prefer to buy gold and silver with after-tax dollars to protect your cash or cash equivalent investments, you can always buy gold and silver coins directly, storing them at home in a safe or storage device of your choice.
There’s no better time than now to start thinking about protecting your assets against inflation. And the precious metals experts at Goldco are ready to help you. With years of experience helping thousands of customers just like you, our experts can answer all of your questions about gold and silver.
Don’t let your hard-earned retirement savings get eaten away by inflation. Call Goldco today and start protecting your assets with gold and silver.
Trevor Gerszt is founder and CEO of Goldco Precious Metals, a privately held retirement services firm in Los Angeles specializing in wealth and asset protection. Offering a range of investment accounts including traditional, self-directed and Self Storage IRAs; as well as IRA rollovers, Goldco has been named the #1 gold IRA provider in the U.S. by Inc.
© 2022 Newsmax Finance. All rights reserved.