Inflation as the term has come to be used in this country is the “rate of change in the prices of consumer goods” usually measured by the Consumer Price Index. Under these guidelines inflation has remained pretty much under control for the past 5 years. One can credit Allan Greenspan, chairman of the Federal Reserve Board for helping to keep inflation in check.

But is inflation really in check?

I think not. By my account inflation is running rampant and no one is talking about it. As far as the politicians and the Federal government are concerned inflation is under control end of story. The real problem lies in how we define inflation. The government uses the Consumer Price Index or CPI as it measure and trigger for all sorts of government programs. Social Security payments for example are tied into the CPI. If the CPI increases payments go up. The same goes for numerous other programs a small increase in the CPI can cost the government a huge amount of money so the government is actively involved in keeping the CPI low. The hidden problem of inflation lies not with what is calculated as part of the CPI but what is not.

Government defines the CPI as the changes in prices paid by urban consumers for a representative basket of goods and services. Its purpose if really to see how the day to day cost of living is increasing. What it does not cover are the big ticket items and this is where the hidden inflation is really occurring. Let’s look at a few examples. Over the past 5 years the CPI has risen a total of 12%. On the other hand the price of homes in is sky rocketing. Lets look at the OFHEO report for 2004. These are one year price increases

• Nevada prices +32.38%
• With Las Vegas leading at 36.23%
• Hawaii +24.56
• California +23.44
• District of Columbia +22.97
• Florida +18.97

Lets look at the 5 year trend. Total increase in the cost of homes

• 2000 +29.59
• 2001 +29.38
• 2002 +29.40
• 2003 +31.82
• 2004 +43.04

Ok you say so house prices are going up but I already own my home and I do not need to buy a new one. Well when house prices go up, cities and towns use this as an excuse to raise taxes. After all the value of your property is now worth more so they are entitled to more property taxes. In additon if you decide to retire to one of the more popular retirement areas you will probably find that the increase in house prices there has far out raced your homes appreciation so that even selling and buying at the same time is not the same as selling and buying in the same market. The end result, you will end up with less house for more money.

Ok, so you are not moving and your town is not currently raising your real estate taxes, do you eat meat? Meat prices have climbed 31% far outstipping the CPI.

Do you still drive? No one seems to need to be reminded of how much gas prices have climbed, 14% in the past year alone. With the increase in gas prices usally comes a similar increase in home heating fuels and in the cost of electricity also usually goes up.

Ok so you are not selling your home, you don't drive and you are a vegatarian, do you take any prescription drugs? (+28% and that is the average) Do you have any kind of health insurance? (+56%)

So how come we hear that inflation is under control and the government is doing such a good job? Because they are the ones who set up the system and the system was designed to make it appear that the inflation rate was low. After all when the CPI goes up the government needs to pay out more money. They need to increase the benefits to millions of people. When the inflation rate as they calcualte it stays low the governement saves billions of dollars in additional payments. Billions that they can spend on pork barrel giveaway programs for those who have the economic clout to buy (excuse me I should say 'influence') their votes.