Chart of the week: US inflation is worse than it looks

The current annual rate of consumer price inflation (CPI) in America is just below the US Federal Reserve’s target of 2%, but to most people it feels much higher, says John Mauldin in Thoughts from the Frontline. Even at 2% a year prices jump by an overall 50% in 20 years, and in any case CPI “doesn’t reflect real-life spending”.

For some of life’s necessities, prices have risen “dramatically”. Over the past two decades medical care, housing and education (the cost of going to university) have jumped by far more than CPI. The Fed also uses an accountancy technique called Hedonic Quality Adjustment, the upshot of which is that if an item has improved in quality, it is deemed not to have become more expensive. “Does that match your experience?“

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